President of the Bank of Russia Elvira Nabiullina told attendees at an international banking forum that the digital ruble is what Russian citizens need because it will facilitate cheap and reliable payments. The governor also warned that stablecoins backed by cryptocurrencies and fiat currencies would pose risks to financial stability.

CBR’s Nabiullina praises the digital ruble concept and rejects cryptocurrencies

The Central Bank of Russia (Community rehabilitation) Attaches great importance to cryptocurrencies and stable currencies because they pose risks to the country’s financial stability, the head of the monetary authority said at a meeting organized by the Bank of Finland’s Institute of Emerging Economies. Russia is cautious about these two private tokens. Elvira Nabiullina told the audience through a video call and also shared Russia’s views on the central bank’s digital currency (CBDC).

Nabiullina elaborated that the entry of cryptocurrencies, especially global stablecoins, into emerging markets may increase currency substitution and crowd out fiat currencies. As a result, financial stability risks may increase, and currency transmission mechanisms may weaken, the senior official added in her speech on the Russian digital ruble project. She further emphasized:

This is why we believe that CBDC is to provide people with the right solution they need-a cheap, reliable and personal data payment solution.

The executive stated that Russian banks do not allow the use of private cryptocurrencies in the Russian payment system. Her statement reiterated the regulator’s long-standing opposition to allowing free circulation of Bitcoin and others, which it usually calls “Money agent. The Central Bank insists that the ruble is the only legal tender under the current Russian law.

Elvira Nabiullina explained that the digital ruble is the third national legal tender after cash and bank currency, and will also have legal tender status, which means that merchants must accept it.The Russian Federation is now preparing adoption Necessary legislation to initiate a prototype, And started pilot projects with the participation of commercial banks and other organizations.

The CBR chair described the transition to CBDC as a major development. In her view, the digital currency issued by the state will promote more advanced and cheaper (which is important for Russia) payment solutions. Nabiullina pointed out that in the long run, they also promised to simplify and accelerate cross-border transactions.

The Bank of Russia started considering CBDC in 2018. After analyzing the pros and cons, it decided to explore the possibility of issuing digital rubles last year. A consultation document was released in October, which contained a long list of questions to gather feedback from the financial sector and other stakeholders. In April, the authorities released the digital ruble concept, outlining the principle structure of CBDC.

The CBDC wallet will be linked to the identity of the holder

The digital ruble will be Retail CBDC All personal wallets will be opened on the balance sheet of the Bank of Russia and a centralized ledger operated by CBR. Commercial banks and other financial intermediaries will provide access to customer wallets through their apps. Nabiullina emphasized that due to anti-money laundering considerations, an anonymous method similar to cash cannot be chosen, adding:

We should also remember that the other side of anonymity is that it is more vulnerable to all kinds of fraud.

“The digital ruble wallet will be associated with the identity of its owner, so from the point of view of the access mechanism, this obviously fits the definition of an account-based system” rather than a token-based solution, where the formula involves knowing the key to an anonymous account , The central banker explained in detail. Nevertheless, currency can be tokenized in an account-based wallet.

According to CBR officials, there is consensus that the design of the digital ruble should emphasize its use as a medium of exchange while limiting its appeal as a savings tool. Nabiullina revealed: “Considering this, the Bank of Russia has made the final decision that the digital ruble will not accrue interest” to avoid competition with bank currencies in the field of savings. At the same time, she believes that digital legal currency will challenge the banking industry’s monopoly on electronic payments, thereby reducing commissions and paying higher interest.

The governor said that in order to avoid bank runs, “may suggest” to limit the amount a person can transfer from an ordinary bank account to a digital ruble account. She added that another option is to limit the amount of funds that can be stored in a single digital ruble wallet.

Elvira Nabiullina expects that a prototype of the digital ruble platform will be launched early next year, and a pilot will begin later in 2022 to “test and refine all aspects of using the digital ruble.” After the completion of the pilot phase, the Russian financial authorities will make a final decision on the launch of the digital ruble.

Do you expect Russia to finally issue a digital version of the ruble? Tell us in the comments section below.

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