Russia seeks to curb the use of cryptocurrencies with a digital ruble

The Russian government plans to begin testing a prototype of the digital ruble in early 2022, following an agreement between the Ministry of Economic Development, the Central Bank and the Russian State Duma.

The project is part of the financial market development strategy, published by the Russian government on 13 September. One of the main objectives of the project is to stop the advance of the use of cryptocurrencies in the country and to facilitate the payment system.

“Based on the results of this pilot test, a roadmap for the introduction of the digital ruble will be developed, as well as the necessary changes to the legislation,” the Central Bank said.

The prototype should already be ready

The debate on the benefits of the digital ruble, which is expected to be fully implemented in 2030, has been open for one month until 13 October.

The prototype of the platform for using the digital ruble should be ready by December of this year. The development and launch of Russia's CBDC digital currency will be carried out in stages.

The type of operations will be progressively expanded and the number of participants in the project will increase, involving for now about 12 Russian financial institutions.

The relevant legislation is expected to enter into force in January next year, parallel to the development of the project, according to the head of the State Duma's Financial Markets Committee, Anatoli Aksákov.

The introduction of the digital ruble will require the approval of special legislation, the Ministry of Economic Development said.

"At the very least, it must be said that it will be possible to pay with a digital ruble, unlike conventional digital currencies." This was stated by Alexey Minaev, Deputy Director of the Department for the Development of the Digital Economy of the Ministry of Economy.

Coexistence of digital currency and traditional currency

At least eight federal laws and five other codes will be reformed to create the necessary legal framework, including tax, budget, civil, criminal and administrative codes.

Aksákov clarified that the legislation will provide for the same rights for holders of fiat and digital money.

The digital ruble will become an additional means of payment, but also a store of value and a savings instrument. That is, it will have the same functions as banknotes and coins.

The legislator added that the new form of currency will guarantee the payment space "without solution of continuity" and "the simplicity of convertibility of the ruble from one form to another".

According to Minaev, there is currently a worldwide trend towards issuing central bank digital currencies.

One way to stop crypto

The incorporation of a digital fiat currency into the Russian economy seeks to curb the growing use of cryptocurrencies in the country. The Chinese government is doing something similar with the implementation of the digital yuan, which is already quite advanced.

Russian regulators see cryptocurrencies as substitutes for money and try to make the state compete with private money. Like China, the Russian Ministry of Finance is of the opinion that the cryptocurrencies encourage money laundering and hinder macroeconomic policies.

Through the digital ruble project, the government hopes to issue new financial instruments. The authorities believe they can increase the availability of existing banking services and reduce transaction costs. They believe the digital ruble will contribute to better management of financial crises and inflation.

VTB, a leading universal bank in Russia, explained that the project is considering integrating customer banking services through a mobile application and transferring fiat digital money between people.

Similarly, spokespersons for another Russian bank, PSB, praised the implementation of the digital ruble. They said banking service costs will decrease and customers will be able to store this type of money securely on the Central Bank's platform.