Russia’s President Vladimir Putin has signed the digital ruble bill into law, allowing the country’s central bank to issue a central bank digital currency (CBDC) in the hopes that it will help combat inflation and the heavy economic sanctions imposed on the country after its invasion of Ukraine.
The bill makes amendments to Russia’s Civil Code, specifically articles related to the regulation of non-cash funds, adding rules for using digital rubles. Under the law, the Bank of Russia is tasked with storing digital ruble assets and will be the principal operator of the digital ruble infrastructure, making the digital currency an official CBDC.
CBDCs are digital forms of a country’s fiat currency issued and regulated by a central bank.
The Bank of Russia can now begin broadly piloting an official CBDC, but indicated that there will be no obligatory transfer to the digital ruble when they are finally in use.
“The most important thing we are going to talk about is the voluntariness. It [the use of the digital ruble] will be a personal choice. Some people, for example, don’t use smartphones and are not going to use them. There will be other forms of currency available for them, to which they are accustomed, both cash and non-cash,” Elvira Nabiullina, governor of the central bank, told the lower chamber of the Russian Parliament.
The bill passed its third and final hearing in the state Duma on July 11 and had been waiting for the president to sign, which he did on July 23.
The passage of the bill into law was fairly smooth, but it was a long road to get to this point.
A long time coming
Discussion of the digital ruble began in October 2020 when the head of the central bank mooted a possible CBDC pilot.
“We view this project as promising, it fits into the concept of the digital economy,” Nabiullina said in a press conference at the time.
The prototype platform for the digital ruble was finished in December 2021, and a few months later, in February 2022, Russia’s central bank announced the start of a—limited—pilot program with 12 Russian banks to test the digital ruble platform.
The Central Bank decided the program had been a success as, on July 11, the Russian Parliament passed the Digital Ruble law, approving a full CBDC pilot and setting down the rules by which the Bank of Russia will interact with participants and users.
Russia’s plans for a CBDC were likely accelerated by the war in Ukraine, which began in February 2022—just after Russia’s central bank announced the start of testing on its digital ruble platform.
Russia could have foreseen a Western reaction to its illegal invasion, but the level and severity of the sanctions were unprecedented, leaving the economy struggling, fiat currency inflating, and, crucially, cutting the country off from the international payment system that powers most international money and security transfers.
Monday’s announcement of the digital ruble law will heighten existing concerns, amongst those imposing restrictions on Russia, that a state-backed digital currency could be used to circumvent sanctions.
After Russia’s invasion of Ukraine, the U.S. barred Russia from making debt payments using foreign currency held in U.S. banks, as well as freezing Russia’s U.S.-based assets to prevent it from using its foreign reserves to prop up the struggling ruble. The U.K. also excluded key Russian banks from the U.K. financial system, froze the assets of Russian banks, and prevented Russian firms from borrowing money.
However, the most severe punishment was barring major Russian banks—including Bank Otkritie, Novikombank, Promsvyazbank, Rossiya Bank, Sovcombank, VEB, and VTB—from the international financial messaging system, Society for Worldwide Interbank Financial Telecommunication (SWIFT).
SWIFT is the most important and widely used network for financial institutions to send and receive information, such as money transfer instructions.
By barring Russia from this system, payments to the country for its oil and gas exports were delayed, forcing it to explore other money transfer options.
In January 2023, it was reported that Russia’s central bank had begun exploring using a CBDC to settle cross-border transactions and get around economic sanctions.
“The main thing is to have agreements between two or more countries,” Skorobogatova said. “If there are such agreements, then the integration of digital currencies can really replace SWIFT because payments and information on them will take place in a completely different settlement infrastructure than now.”
Whether the digital ruble will provide Russia a panacea to sanctions and cross-border payment restrictions is difficult to predict—not least because the country’s particular situation, and CBDCs themselves, represent uncharted waters for international finance.
Monday’s amendment to the Russian Constitution will come into effect on August 1. Still, the digital ruble is not expected to be fully launched until 2025, after the completion of expanded pilot projects.
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