Russia’s central bank governor, Elvira Nabiullina, believes that digital currencies will be the future of financial systems as the country’s economy moves more online.
Moscow published a consultation paper back in October on the feasibility of the digital ruble and is looking to launch their central bank digital currency (CBDC) by the end of the year. Nabiullina believes the transition to a CBDC would fill the demand for a fast and cheap payment system in Russia, she told CNBC news.
The consultation paper elaborates by pointing out the development of digital payments and access to a digital ruble will lower the cost of payment services. Additionally, remittances will be cheaper and promote healthy competition amongst financial institutions.
The idea is to jump-start innovation in retail payments and help the emergence of a digital economy. The entire system’s stability is also expected to increase, as users become less dependent on individual providers. Essentially, Russia is looking to inject some fresh blood and ideas into their economy in the form of a CBDC. Pilots and trials for the digital ruble could begin in 2022, says Nabiullina.
Advocates for sovereign digital currencies say they could promote financial inclusion and make cross-border transactions easier. Nabiullina, however, believes there are a number of hurdles standing in the way, before such inclusions could occur. Primarily, as she points out, if each bank does its own thing, how would they communicate with one another?
“If each bank creates [its] own system, technological systems with local standards, it will be very difficult to create some interconnections between these systems to facilitate all cross-border payments,” Nabiullina said.
As it stands, cryptocurrencies still cannot be used as a payment method in Russia or be owned by public officials.
The U.S. is raising concerns over CBDCs from certain countries
According to former U.S. Treasury official, Michael Greenwald, “What alarms me is if Russia, China, and Iran each creates central bank digital currencies to operate outside of the dollar and other countries followed them.” He added that such a development, “would be alarming.”
Nabiullina admitted that U.S. sanctions on Russia are a “persistent risk” and the main reason why their fiscal policies are on the conservative side.
Washington has imposed a number of sanctions on Russia in the past for issues ranging from cyberattacks to possible interference in the last two presidential elections.
As far as China goes, it seems the United States is more concerned with being left behind as the rapid development of the digital yuan continues. Just this morning China announced it will continue their CBDC trials by handing out $6.2 million digital yuan to people in Beijing via a lottery drawing. This is the third such trial, after both Chengdu and Shenzhen hosted their own lotteries in the last year.
The United States is concerned that the success of these trials, and the digital yuan in general, would strengthen China’s domestic economy. Furthermore, they are worried that it could increase international competition that might threaten the dominance the U.S. dollar has long enjoyed.