Big moves are afoot on the digital ruble.
On July 30, Elvira Nabiullina, the governor of the Central Bank of Russia (CBR), told Russia’s Federation Council (parliament’s upper house) that a digital ruble could be ready for mass implementation as soon as July 2025. If this were to happen, it raises the prospect of Russia becoming the first G-20 economy to launch a full-fledged CBDC. But as I will try to explain in this article, it will face significant obstacles in this endeavour as well as stiff competition from countries further along the development path.
Here is the money quote from Nabiullina’s speech:
In terms of our pilot project for the digital ruble, we will expand it in just a month for those banks that are already with us in the pilot mode. There will also be a series of expansions for the pilot project going forward… I can currently say that if everything continues to go according to our plan, then we will successfully implement the pilot projects. We will be able to move from the pilot mode to mass implementation of the digital ruble as of July 2025. We are aiming for these dates.
As even Nabiullina herself hints at, the July 2025 deadline is probably a touch optimistic since it requires all of the new, scaled-up pilot tests to go according to plan. And a CBDC system, whether for an island economy like Jamaica or Russia, the world’s largest country in terms of landmass, consists of a lot of moving parts. Also, the pilot test conducted so far appears to be surprisingly small scale, especially compared to the pilot tests so far carried out by the People’s Bank of China and the Reserve Bank of India (more on those later).
Launched on August 15, 2023, the first stage of the CBR’s CBDC pilot involved testing active operations with (in the words of an Interfax article) “real” digital rubles. Those operations included opening wallets in digital rubles for banks and clients (individuals and legal entities), transferring digital rubles between clients, and payments at trade and service enterprises. So far, 12 banks, 600 individuals and 30 retail outlets spread across 11 Russian cities have taken part in the trial.
A Strictly Voluntary System, Apparently
Now, as Nabiullina says, the pilot tests will be expanded. Twenty-one more lenders are expected to join the next stage, which could begin as soon as September this year. The central has also started testing settlements using the digital ruble with a number of Russia’s foreign partners, according to RT. The legal apparatus has already been put in place for a CBDC system. In June 2023, President Vladimir Putin signed a law to introduce a digital ruble. From RT:
According to the document published on the official government portal, the electronic currency will become operational on August 1.
The digital currency will be issued alongside the traditional ruble – both cash and non-cash. It will be used to make transfers and payments and will be kept in digital wallets on a platform operated by the central bank. It will not be possible to open a deposit, take out a loan, or receive interest on the digital currency.
The president also introduced relevant amendments to the Civil Code to enable the digital ruble to be bequeathed and inherited.
A few weeks ago, Putin provided his own progress report on the digital ruble, asserting that the pilot launch had demonstrated the “efficiency and functionality” of the CBDC platform, opening up the way to “moving toward a wider, full-scale implementation of the digital ruble in the economy, in business activities and in the field of finance.”
For her part, the governor of the Central Bank of Russia insists that this process will be gradual, that the digital ruble will not replace cash and that its use by citizens and businesses “will be absolutely voluntary,” which more or less mirrors the European Commission and European Central Bank’s declarations on the digital euro. From an article in Vedomosti (machine translated):
“I will not grow tired of repeating this, because there is a major misunderstanding that we will impose the digital ruble. This is not true,” Nabiullina affirmed.
Nabiullina also spelt out some of the advantages of a digital ruble: absolutely free transfers for citizens and significantly lower processing fees on card and mobile payments for businesses.
“We believe that thanks to these advantages, the digital ruble will gradually become a habitual part of our life within five to seven years,” the head of the Central Bank of the Russian Federation concluded.
A Programmable Ruble?
Based on my limited reading of Nabiullina’s speech, which is not featured on the central bank’s website, she does not appear to have addressed the potential risks, pitfalls and dangers of CBDCs. They include the possibility of central banks programming how this new form of money is distributed to and used by citizens, businesses and other organisations.
This would offer huge benefits for government and central banks, allowing them to operate at much higher resolution, notes NS Lyons, a Washington DC-based political analyst and blogger, in his [largely US-centred] article, Just Say No to CBDCs: “Targeted microfinance grants, added straight to the accounts of those people and businesses considered especially deserving, would be a relatively simple proposition.”
By the same token, Lyons warns, CBDCs could be used to significantly curtail public choice. In a cashless CBDC-dominated world, less socially or politically desirable people or organizations could even be denied access to the financial system:
“The most dangerous individuals or organizations could simply have their digital assets temporarily deleted or their accounts’ ability to transact frozen with the push of a button, locking them out of the commercial system and greatly mitigating the threat they pose. No use of emergency powers or compulsion of intermediary financial institutions would be required: the United States has no constitutional right enshrining the freedom to transact.”
Other potential forms of programming applications include setting expiry dates for stimulus funds or welfare payments to encourage users to spend the money quickly.
The Kremlin is, at the very least, considering making its CBDC programmable. In an interview last autumn with Kommersant Radio, deputy Anatoly Aksakov, who apparently authored Russia’s digital ruble law, said that payments in the emerging CBDC system will be made through smart contracts that can be programmed. As an example, he raised the prospect of parents (or the government?) being able to ensure that children spend their money on meals and textbooks rather than games and sweets (again, machine translated):
As for personal use, a vivid example, of course, is children receiving money from their parents but spending it not on what they need. In this case, the intended use can be programmed allowing them only to spend digital money on lunch, breakfast, and textbooks. And those who receive the funds actually receive them in a decoded form. They can use them for the purposes they see fit.
Can the state interfere in this process? I admit that this is also possible, although we have not yet addressed this issue with regard to digital rubles. In principle, since everything revolves around the central bank’s IT system, the government can establish rules that will prevent the payment of, say, unscrupulous external partners.
In the EU, the UK and other Western jurisdictions, central banks and governments insist that their respective CBDCs will not be programmable, but only after a public backlash. But can we trust their world? After all, once the system is up and running, the central bank can quite simply change the rules of the game and install whatever programmable features it wants.
Roughly this time last year, a blockchain developer claimed to have reverse-engineered Brazil’s pilot CBDC, revealing that it contains features that allow any entity authorised by the central bank to freeze, confiscate, or move funds belonging to any “owner.” As the financial journalist Norbert Häring noted at the time, the word “owner” is hardly an appropriate term given that any user of the system will have such limited control over their assets.
The End of Financial Anonymity?
Askakov is also disarmingly candid about one of the other major dangers (or presumably from the State’s perspective, benefits) of a digital ruble — the end of financial anonymity:
According to official statistics, there is now a record amount of cash in the economy. All transactions and transfers are anonymized. And all transactions with the digital ruble are devoid of anonymity. When these rubles are issued, most likely, in order to attract a larger number of participants, part of our routine payments and transfers will also be transferred to the digital ruble.
The State Duma can quickly pass a law that part of the salary is paid in digital rubles (NC: which surely contradicts Nabiullina’s claim that the use of the digital ruble will be completely optional). In this regard, there is indeed a certain interest on the part of the fiscal departments, on the part of the state, which will be able to monitor these transactions, understand not only the visible income of citizens, but also their outflows.
So, Russian people can look forward to having much more granular State surveillance of their financial transactions, with the added possibility of having their funds frozen, confiscated or moved against their will if they are deemed by to be, among other things, “unscrupulous”. Other potential downsides of a CBDC include much greater centralisation of the financial system, the heightened systemic fragility that will almost certainly bring with it, and the probable disintermediation of smaller, local banks.
As I’ve repeatedly warned over the past few years, including in my book Scanned, central bank digital currencies will almost certainly go hand in hand with digital IDs. In 2021, the FT wrote: “What CBDC research and experimentation appears to be showing is that it will be nigh on impossible to issue such currencies outside of a comprehensive national digital ID management system.” That will mean even broader and closer scrutiny of your most personal data.
The Russian State has been working with the central bank to develop a digital biometric identification system since 2018. In early 2023, Interfax reported that the Russian Ministry of Digital Development had “submitted jointly with the Federal Security Service (FSB) a draft order that would allow using a digital identity document on smartphones instead of a passport in some day-to-day situations.”
Other CBDC Frontrunners
The development of CBDCs is a trend that transcends most borders even as geopolitical fractures grow. Roughly 136 countries and currency unions, representing 98% of global GDP, are exploring CBDCs, according to the Atlantic Council’s CBDC Tracker. Of those, 36 have reached the final pilot stage of CBDC development — up from 21 just under a year ago. Of those, no fewer than eight are BRICS-plus members: Brazil, Russia, India, China, South Africa, Saudi Arabia, United Arab Emirates, and Iran.
In other words, the BRICS economies — with the two exceptions of Egypt and Ethiopia — are leagues ahead of most economies in the so-called Collective west when it comes to developing CBDCs. In fact, the only “Western” central banks that have so far reached the pilot stage of CBDC development are the Reserve Bank of Australia, Sweden’s Riksbank and the European Central Bank.
China is, of course, leading the way, having begun working on developing a digital yuan in 2014, and is by all metrics closer than any G20 economy to launching a full-fledged CBDC. The digital yuan pilot program it launched in 2019 now extends to 27 cities.
They include Hong Kong, one of Asia’s leading financial hubs whose local authorities recently allowed the pilot digital yuan to be used in shops in the city. The move marked an important milestone in Beijing’s efforts to internationalise the digital yuan, Reuters reported at the time.
By the end of June 2023, 120 million digital yuan wallets had been opened and total transactions using the pilot CBDC had reached 950 million with a cumulative value of 1.8 trillion yuan (US$249.9 billion), up from 100 billion yuan (US$13.9 billion) the previous August.
But even China is having big teething problems. As SCMP reported in May, some of the pilot cities have begun paying state employees with the CBDC, but most of the employees have been converting it immediately to cash. Forbes recently highlighted another problem: “China has already developed a mature, comprehensive ecosystem undergirded by the duopoly of Alipay and WeChat Pay. There is very little that the digital renminbi can offer Chinese consumers that they cannot already access through existing payment platforms.”
India’s digital rupee pilot is also struggling to maintain momentum, according to an article published last month by Reuters. After hitting a peak of 1 million transactions per day in December, the first month of the pilot — “an achievement that came only after banks were asked to push up transactions by offering incentives to retail users and disbursing a portion of bank employees’ salaries using the e-rupee” — daily transaction numbers have fallen to around 100,000, two unnamed sources who are directly involved in the pilot told the news agency.
But both China and India’s CBDC pilots have reached far greater scale than Russia’s. Yet it seems that they still have plenty of work to do if they want to reach critical mass. In other words, the Central Bank of Russia will probably have its work cut out if it wants to launch a full-fledged digital ruble by July next year. As for the handful of CBDC projects that have been fully launched, like in the Caribbean by the Bahamas and Jamaica, they have enjoyed only limited success, the Federal Reserve Bank of Kansas City said in an April note.
The performance of Nigeria’s eNaira has been even more dismal. Despite the former Buhari government and central bank governor’s best efforts to force the digital currency on Nigerian citizens and businesses, the eNaira only constitutes 0.36 percent of the country’s currency in circulation. As the IMF reported in its “Nigeria Staff Report for the 2024 Article IV Consultation,” only 13 million eNaira wallets have been downloaded (in a country of around 230 million), with the vast majority of them remaining inactive.
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CBDCs have been used from international trading for two years now, and that is their best use case. My adoptive country, Thailand, has been using the mBridge platform to pay for its imports of UAE oil in e-baht, and using e-baht to pay for its Chinese imports since 2022. It works great.
This comment illustrates perfectly why I do not approve your comments. You exaggerate to the point of Making Shit Up.
This document from the mBridge site dated June 18 of this year makes clear the project is only in the testing stage.
https://metalsmint.com/what-is-project-mbridge/
I will not approve any future comments. I do not have time to vet accuracy.
In my opinion the reason Jamaica is pushing this digital currency is because west bribe them to push it, my grandma was nearly one month without electricity, you would be nuts pushing digital currency in a country what have such a bad infrastructure but these people dont care. Russia still have alot of neoliberal so no wonder that they too are pushing this digital currency. In my opinion when digital currency start in the west sanctions will be even worse
Russia won’t be off the West’s target list for a while and they want to make their economy more hackable than economies already are?
If the paper ruble is abolished, Russians will prefer to deal in dollars or euros.
My eyeballs are spinning so fast they might take off. Not only is all of this CBDC going on on a sovereign scale, but Crypto is keeping pace as Russia has legalized crypto transactions under certain sovereign regulations. The possibilities are vast, no? Russia notes that the whole thing is wide open and points out that the US Constitution “has no right of transaction.” That’s like saying, “Don’t take your right to breathe as a given.” But looking at both Crypto and CBDCs, whether separate or combined, to me it looks like the ultimate fiat wherein human cooperation is directly translated into “transactions.” Making the word “currency” the focal point. CBDC will need currency highways and stop signs fer shure. I wonder how digital will adapt to the definition that “ money is a medium of exchange, a unit of account, and a store of value.” And a means and control of cooperation?
A key question is, what will be the compelling value add that will cause the population to start using digital rubles?
I’ve been spending half time in Russia for many years now. Russia has long had the SBP (СБП) payment system allowing universal, instant transfers between people regardless of their bank, using cell phone numbers. And direct transfers bank-to-bank are frequently available, though one has to keep an eye on commissions when large amounts are involved.
Fintech in Russia is quite a bit more advanced than the US. In recent years in the US I’ve worked on fintech systems that did not even have an API into the correspondent financial institution, instead using text files containing the ACH instructions uploaded with FTP. It’s barbaric, but it also means that a CBDC in the US can be combined with improved digital plumbing, generating value that way. Zelle et. al. not withstanding.
But in Russia, people already have digital payments for virtually everything. Even little kiosks out in the rural middle of nowhere have terminals to run your credit card. During my last multi-month stay I never once picked up cash from the ATM, and missed only the ability to leave a few tips here and there. (Most restaurants have QR code mechanisms for tipping, but cash is still useful for tipping for deliveries to your apartment.) That said, there are a lot of ATMs in Russia and quite a few people waiting in line at them for cash, especially on Friday evenings.
My elderly mother-in-law was cash-only until recently when my wife persuaded her to get a debit card. From that she discovered cash-back (“kesh-beck”, кешбек) and now she spends hours on her phone plotting the best discounts (“skeedkey”, скидки) via the labyrinthine incentive programs available from every merchant and their phone apps. Russians have a vast tolerance for complexity, especially if saving a few rubles is involved. She still keeps cash around of course, older Russians prepare for all contingencies, but she’s a dedicated digital transaction person now.
One does see large amounts of cash used in Russia when one doesn’t want to leave a trail. For example, employment bureaucracy is onerous so quite a few small companies pay their employees in 5000 ruble notes. The company might have a number of accounts at different institutions, and withdraw the maximum amount of cash from many locations each payday. If you pay off-the-books employees by direct transfer, you are inviting a highly unpleasant audit of company financials by government officials. The Russian government monitors all banking transactions of all kinds. But withdrawing large amounts of cash doesn’t seem to invite scrutiny very often, at least nobody discusses it in my circles. It’s going to be very difficult to streamline the bureaucracy, so eliminating cash could impact employment.
My question about digital rubles remains, why would people want them?
– Eliminate cash: improved state surveillance, but no benefit to the citizens.
– Financial incentives: maybe, but Russian banks already pay high interest rates
– Government mandated payments: people will just convert as needed
– Smart contracts: maybe, if mandated
To me it seems like a classic case of a technology looking for customers and a use case, but perhaps I just don’t understand the concept well enough.
Your observations about Russia match my own. It is certainly way ahead of Italy in terms of fintech and general online (and cashless) convenience. At our local Moscow supermarket, I see that many younger customers (say, under the age of 30) use neither cash nor plastic cards: they pay with their smartphones. During all of my recent visits to Moscow, I seldom used cash. Paying to people’s phone numbers is routine. Even the taxi drivers are digital nowadays (Yandex Taxi).
In Russian business, however, cash remains important: in order to avoid paying payroll taxes and VAT and in order to pay bribes/kickbacks (взятки and откаты, two words that are hard to avoid using when doing business in Russia). I suspect that the government’s push to introduce a CBDC digital ruble is driven by its desire to minimize tax evasion and corruption, especially with a war to finance and no prospect of peaceful global relations on the horizon (i.e., permanently higher defense spending). Most ordinary Russians would be unaffected by the introduction of a digital ruble, as most of them are already doing most of their transactions without using cash. But for many (possibly most) businesses, a forced introduction of a digital ruble would be a serious game-changer. I would expect the Russian government to tread carefully on introducing this, in order to avoid causing too much disruption.
Possibly the government also thinks that a digital ruble (together with other BRICS countries introducing their own CBDCs) would facilitate sanctions avoidance, but this is not my area of expertise so I can only guess.
“In a cashless CBDC-dominated world, less socially or politically desirable people or organizations could even be denied access”
This is true, but my question is, how is this different to a privately-owned-bank-dominated world?
Technically, with cashless transactions using current (modified) banking systems, we could program them so that certain transactions could be prevented. For example, an EFTPOS transaction in a store could be rejected if the store sold goods on the prohibited list for the individual – e.g guns purchased by a person with a criminal record, or a minor trying to purchase alcohol.
It is the technology that makes CBDCs easier to program, but the central issue is that combination of programmability and loss of privacy.
Governments of all kinds want to know what their citizens are up to, what they think, what they do, and where they go – not always for nefarious purposes, but often so.
CBDCs coupled with smartphone technology make all of this possible.
The bottom line is that we can’t trust our governments, and corporations, to respect us or our privacy.
I’m a little rusty on Revelations, but isn’t a “cashless” society one of the signs of the “End Times”?
Sorry for me not running down the actual sections from Revelations, but a recap from Quora:
https://www.quora.com/Is-the-cashless-society-predicted-in-the-Bible