Russia testing its CBDC: a farewell to freedom

Russia has begun testing its own CBDC, the digital ruble. And the possibilities we have seen are truly frightening. If that is the future of currency, the word “freedom” may soon be only relegated to dictionaries.

We have been watching developed democracies endlessly examine the prospect of introducing central bank digital currencies (CBDCs), consider various concepts, and hold public discussions for some time now. Meanwhile, states, let’s say, less democratic, impose CBDCs without much debate or reflection.

The prime example is obviously China, where the digital yuan is being put into circulation through a mostly undemocratic procedure. The next major country to introduce a CBDC and establish complete control over the national currency could very well be Russia.

On February 15, the press service of the Bank of Russia (the country’s central bank) reported that the bank, alongside several large market participants, is testing the digital ruble platform and there have already been the first successful digital ruble transfers.

The creation of a prototype platform for Russian CBDC was completed in December 2021. Twelve banks expressed their desire to take part in its testing: Ak Bars, Alfa-Bank, DOM.RF, VTB, Gazprombank, Tinkoff Bank, Promsvyazbank, Rosbank, Sberbank, SKB-Bank, Soyuz and Transcapitalbank.

The Bank of Russia is the sole issuer and operator of the e-ruble – its clients can open digital wallets and manage them through financial institutions. According to the developers, the digital ruble is unique in that customers get the opportunity to access a digital wallet using the mobile app of any bank they choose.

First Deputy President of the Central Bank of the Russian Federation Olga Skorobogatova noted that digital ruble transfers would be free for all citizens and available in any region of the country. She claimed it would also reduce costs for businesses and contribute to the creation of innovative products and services. “The state, in turn, will receive a new tool for targeted payments and budget expenses administration”, Skorobogatova stressed.

We now also know the course for further testing of Russian CBDC, which will continue until the end of the year. The first stage will examine issuing of the digital ruble, opening wallets, and transfers. The second stage will look at payments for goods and services, public service charges, smart contracts, and integration with the Federal Treasury. Later on, there are plans to test offline payments (for situations where there is no Internet access), operations with financial intermediaries and other digital platforms. At that stage, financial transactions are also supposed to open up for non-resident clients. The testing results will lay a roadmap for the practical implementation of the platform going forward. However, the final decision is a political matter and will be taken no earlier than 2023.

The press services of Promsvyazbank (PSB) and VTB have already commented on the early trials.

“PSB and VTB carried out the first transfer of digital national currency in Russia using the Bank of Russia’s digital ruble test platform”, the message said. In a specially developed trial version of the PSB mobile app, the client registered as a user of the digital ruble platform, opened a wallet and exchanged rubles on their bank account for digital ones. The testing concluded with a successful transfer from a PSB wallet to a VTB wallet via the Bank of Russia platform.

Meanwhile, Belarus, Russia’s partner in the Union State, is also laying the ground for the introduction of CBDC. Which, by the way, may well turn out to be the Russian ruble – talks about establishing a shared currency between the two countries have been going on for a while.

Just the other day, President of Belarus Alexander Lukashenko signed Decree No. 48, “On the register of virtual wallet addresses and the circulation of cryptocurrency.” The law updates the rules for digital currency circulation, constant supervision of the situation, and, if need be, supplementary and clarifying regulatory norms in the country.

But let’s get back to Russia. The Bank of Russia introduced the concept of the digital ruble in mid-October last year. It is supposed to be implemented in the form of a unique digital code stored in a special electronic wallet and become a full-fledged means of payment on a par with the regular ruble.

The main difference between the CBDC ruble and the long-existing cashless one is the unique digital code of each virtual coin. And, therefore, traceability. It is basically a cash ruble that doesn’t physically exist. Or rather, it exists as a record, making any operations with it without the knowledge of the central bank impossible.

All these developments greatly frightened Russian observers. They believe that, having tested the e-ruble, the authorities will start actively replacing non-cash and cash money in circulation within the country with it. Their reasoning is clear – a completely transparent and controlled “bitcoin” with a blocked possibility of mining is the dream of any regulator.

The determination with which the authorities of different countries are trying to ban or take control of cryptocurrencies will only grow. No state wants to share the monopoly right to issue or allow everyone to make unregulated financial transactions. Still, the most tempting thing is to always know exactly how much money each person has in their wallet, how much they receive, and what they spend them on.

If states, having banned cryptocurrencies, impose totally controlled money (albeit implemented on the blockchain) on their people, it will bring the end of freedom and start an all-out civil war.