Action Against Swift Sanctions
Russia launches digital ruble
08/15/2023, 8:13 p.m
As the ruble experiences severe turbulence, Russia begins piloting a digital variant of its currency. The goal: circumvent Western sanctions. But the country is following an international trend.
Amid the currency turmoil, Russia has launched the testing phase for the launch of the digital ruble. As the Russian central bank announced, 13 banks and 600 individuals are initially involved in the pilot project. The test persons can therefore pay with the digital currency at 30 points of sale in eleven Russian cities. “Between 2025 and 2027,” according to the central bank, the digital ruble will then be issued to all interested Russians.
As a result of the Ukraine conflict, numerous Western countries imposed sanctions on Russia. Among other things, many Russian banks were cut off from the international payment system Swift. As a result, Moscow accelerated the development of alternative payment systems. Similar to cryptocurrencies, the digital ruble allows direct payments via a decentralized database.
The new currency will be issued by the Central Bank of Russia and kept in electronic wallets. The system is monitored by the Russian secret service FSB. While Russian authorities claim that the digital ruble makes payments safer, some experts see it as an attempt to control the Russians even more. According to researchers at the US think tank Atlantic Council, Russia is the 21st country in the world to enter the testing phase for a digital currency.
Also digital euro in discussion
Digital currencies are trending. By the end of the decade, there could be about two dozen sovereign digital currencies around the world, according to a survey by the Bank for International Settlements (BIS). This is the result of a BIS survey of 86 central banks from the end of 2022, which the central bank of central banks published in mid-July. According to this, 93 percent of all central banks surveyed are now working on projects for the possible introduction of digital versions of their currencies.
The European Central Bank (ECB) wants to decide in October whether to enter a preparatory phase with its digital euro project. This should take two to three years. A digital euro could then be put into circulation in around three to four years.
While Russia wants to circumvent Western sanctions, currency watchdogs around the world are reacting to the growing competition in digital payment transactions from companies such as Paypal or Apple Pay and the rise of cryptocurrencies such as Bitcoin and Etherum. With the issuance of digital central bank money (CBDC), they want to avoid that, given the increasing decline in cash, digital payments are left entirely to the private sector.
In 2020, the island nation of Bahamas was the first country in the world to officially introduce a digital version of its currency, the “Sand Dollar”. In the Eastern Caribbean – including the island states of Antigua and Barbuda as well as Grenada – in Nigeria and Jamaica, further digital currencies have now been put into circulation.
rubles in rough waters
The classic ruble has only just crashed. Even a sharp rise in interest rates on Tuesday could not stop this. The background is the Western sanctions against Russia, which are increasingly weighing on the trade balance. In addition, ever larger sums are being put into the military budget for the Ukraine war, which the government in Moscow calls a special military operation.
Recently there had been disagreements between the Kremlin and the central bank. Maxim Oreshkin, President Vladimir Putin’s economic adviser, has criticized that loose monetary policy is the main reason for the weakening of the ruble and the acceleration of inflation. The Kremlin wants to see a strong ruble and expects it to normalize soon.
The central bank, meanwhile, took the view that rate hikes would have no direct impact on the exchange rate. Central bank deputy governor Alexei Sabotkin said growing demand for imports coupled with subdued export growth is putting the ruble under pressure.