The Union State of Russia and Belarus may implement the first CBDC of the former Soviet Republics.

    29 Jul 2021

    This is more of an assumption, but the progression of events, the documents being adopted, and the author’s own information sources all indicate that the state digital currency of the Union State of Russia and Belarus could arrive completely out of the blue.

    The dramatic events unfolding in Belarus since August of last year are pushing the official authorities in Minsk and Moscow to accelerate the integration of the two countries within the framework of the “Union State” they created back in 1999. The states were supposed to establish a single currency back in 2007, but then Belarusian President Alexander Lukashenko refused to create a single issuing center for political reasons.

    Now that his position within his own country has become rather precarious, the Belarusian President is willing to agree to many of Moscow’s proposals, including the merger of the two countries’ economies. And at a time like this, one very curious document has been published.

    It’s an analytical report titled “The Union State of Belarus and Russia: Results for Citizens and Prospects”, presented on July 14. Its authors are 16 leading experts from Russia and Belarus, and it focuses a lot on the topic of finance. In addition to generic rhetoric like “… gradually strengthen state control over the financial sector and launch the intra-Eurasian investment cycle to restore the industrial potential of the region and prevent financial destabilization …”, there are also quite specific points regarding cryptocurrencies.

    In particular, the recommendation to “…develop uniform approaches to digital financial communications and cryptocurrencies. Create a singular legislative framework for cryptocurrency regulation within the Union State. Prevent the emergence of competing virtual cryptocurrency projects within the Union State and the EAEU. Lack of coordination in this area can lead to deep financial conflicts and the collapse of the common financial space.”

    Based on this, it is easy to conclude that the authors of the report are talking about a single cryptocurrency (CBDC) in the Union State, which must be introduced to maintain the “common financial space”.

    As it stands, Belarus and Russia have two different banking systems, two separate currencies, their own exchanges, insurance companies, even the bank requirements are different. In these circumstances, the financial authorities of the two countries seem to be considering the introduction of the Union State CBDC as a way to dramatically accelerate the process of integrating financial systems.

    The report goes on to discuss the need to introduce a common digital currency as the first step towards a single currency: “Consider the introduction of digital currency as a transitional stage towards a single currency for the Union State or the EAEU. … Work out the issues of forming a common information space, create rating and other agencies, agree on a common supranational digital currency and cryptocurrency…”.

    It may appear odd at first, especially if you consider the sharply negative attitude towards cryptocurrencies on the part of the Russian financial authorities.

    As usual, though, nothing is that simple. Back in December 2017, Vladimir Putin’s advisor, well-known Russian economist Sergey Glazyev suggested creating a national cryptocurrency – “CryptoRuble”. According to Glazyev, issuing of digital currency units “will have the same fundamental importance as the issuing of national currency”.

    However, Glazyev believes that such currency can only be government-issued – “mining is unacceptable”. “It is simply a decision by the authorities to issue a discrete cash flow in cashless form.”, – explained the Russian presidential advisor. Either way, Glazyev says cryptoruble must use the blockchain technology.

    For Glazyev, there are definitely benefits to cryptoruble: “The digital ruble guarantees us complete protection – from fraud, from theft. It can be applied wherever there is a requirement for the targeted use of money, be it government spending, budget investments, or the work of banking structures and corporations.”

    Notably, that was said back in 2017. Since then, Sergei Glazyev has often brought this idea up, and, as a presidential adviser, worked out a sufficiently detailed plan for the introduction of CBDC in the post-Soviet countries.

    That being said, the commercial interest of Glazyev’s family cannot be overlooked. In 2018, the son of Sergei Glazyev, Ruslan, founded Take Wing Co, while also launching his own small crypto exchange. The Glazyevs, son and father, even prepared their keynote speech “Cryptocurrencies as a New Type of Money”. Among other places, it was presented at the “Internet and the Digital Economy Development Trends” conference, held in Crimea on May 29 to 31, 2018.

    The 20-page document provides a historical rationale for digital money. Historically, it says, each new type of money (coins, and then banknotes, which at first were the bank’s promise to pay someone in precious metal on presentation) was first issued by private individuals like Bitcoin is now, but then the right to issue money got taken over by the state. The current world system is based on the dollar, and second-tier currencies are used to “forge a semblance of democracy” and “divert attention from the dollar’s functions as an instrument of latent robbery and exploitation of humanity.”

    Digital money, just like traditional fiat money, is not backed by anything, but it has a number of advantages, the Glazyevs claim. Digital money accounting technology based on blockchain decentralized ledgers, “allows you to reliably control the flows of transferred funds and excludes the possibility of their withdrawal from the control loop, preventing theft, misuse, and exchange for foreign currency”. The movement of money is “automatically controlled up to the final steps in the use of credit resources – payment of wages, receipt of dividends, loan repayment.”.

    According to Putin’s adviser, the digital currency will reduce interest rates. At the same time, the distributed ledger is inaccessible for foreign analysis or intervention, and the interbank blockchain platform can provide independence of the SWIFT system.

    The Glazyevs’ developments have not yet been implemented in Russia. But it is quite likely that another attempt will soon be made – now within the framework of the Union State. At the very least, this is one of the options being considered at the highest level.

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