TASS-FACTBOX. On July 24, 2023, Russian President Vladimir Putin signed a law introducing the digital ruble. TASS has assembled all of the key facts about the digital ruble and how digital currencies interact with central banks.

 

Digital currencies of central banks

Until the mid-2010s, almost all world currencies existed in two forms: cash and non-cash. The emergence of cryptocurrencies, the widespread use of electronic wallets and the development of online infrastructure led to the creation and use of a digital form of currency.

Unlike cryptocurrencies, which, as a rule, do not have a regulator or issuing center, digital currencies are issued by central banks.

The digital currency rate is identical to that set for cash and non-cash. Digital currencies are the legal liability of the Central Bank, same as paper money and coins.

How digital currencies are introduced by central banks may differ. For example, a digital currency wallet may be located on a platform created by a central bank, or it may be on the platforms of individual banks, similar to a bank account. Some models provide that individuals and legal entities directly interact with their wallets on the platform of the Central Bank, while others provide that there are intermediaries in the form of financial institutions.

Depending on how they are rolled out, digital currencies can:

- provide payment for goods and services without Internet access, like cash.

- serve as smart contracts: for example, in escrow accounts, when funds are withdrawn from the buyer at the conclusion of a transaction, but they come to the seller only if he delivered the goods.

- have mechanisms for "coloring" payments and restrictions. For example, so that cigarettes cannot be purchased from a minor's digital wallet, or a budget-financed company that received money for a specific project cannot spend it for other purposes.

One of the main incentives for the introduction of digital currencies is the simplification, acceleration and cost-effectiveness of both domestic and international transactions.

Exporting companies will not need to use the services of counterparties or use interbank information exchange mechanisms like SWIFT, since non-residents will also be able to open their wallets. However, the mechanism of such cross-border transfers has not yet been assimilated by digital currencies.

Digital ruble

In 2017, at the St. Petersburg International Economic Forum, Deputy Chief of the Bank of Russia Olga Skorobogatova made the landmark announcement that the regulator was planning develop a virtual currency.

On October 13, 2020, the Bank of Russia presented a consultative report on the creation and implementation of such a currency, which was called the "digital ruble." Commenting on this report, on October 23, 2020, the regulator’s Chief Elvira Nabiullina stressed that the digital ruble was not intended to displace cash.

The concept of the digital ruble was published in April 2021.

On June 29, 2021, it was announced that the Bank of Russia had formed a pilot group of 12 banks (later increased to 13) to test the digital ruble. In the same year, banks began closed testing of the program.

On April 22, 2022, speaking at a press conference at TASS, Anatoly Aksakov, Chairman of the State Duma Committee on the Financial Market, noted that the digital ruble is one of the ways to counter Western sanctions.

Features of digital ruble

The digital ruble will be an addition to the cash and non-cash ruble. One digital ruble will be equivalent to one ruble in cash or non-cash form. Like a banknote, each unit of the digital ruble will have a unique digital code.

The concept chosen by the Bank of Russia provides that the digital ruble platform will be entirely under the jurisdiction of the regulator. The infrastructure of the regulator will serve the online wallets of clients and legal entities, as well as conduct transactions. Only the Federal Treasury will be able to directly access their wallet on the platform. All individuals and legal entities will interact with their wallets through conventional banks and their applications. One client will only have one online wallet. It will be possible to replenish it from a bank account or card, at the expense of cash. Similarly, it is planned to implement a simple exchange of digital rubles for cash and non-cash. Clients will be able to access a wallet with a digital ruble through any bank (after the system is fully launched).

The Bank of Russia noted that the digital ruble will not be a substitute for bank accounts and deposits: interest will not be charged on balances in the wallet, moreover, it is planned to introduce a limit on the amount of funds stored in them. This is needed to prevent an outflow of liquidity from banks and a decrease in lending.

Paying for goods and services using the digital ruble will be similar to paying with a QR code through the Faster Payments System. It will be possible to pay with the digital ruble offline, without access to the Internet. The client will transfer part of the digital rubles to a separate offline wallet. Its use will be similar to paying in cash, where credit cards are not accepted. The launch of the offline mode of the digital ruble is scheduled only at the second stage of the project, approximately in 2024. It is also planned to launch the exchange of the digital ruble for foreign currency and open wallets for non-residents.

As the Bank of Russia’s Chief Elvira Nabiullina stated at a meeting between Russian President Vladimir Putin and the government on July 19, 2023, the mass introduction of the digital ruble could happen at the beginning of 2025.

Law

On December 29, 2022, a group of lawmakers headed by Anatoly Aksakov, Chairman of the State Duma Committee on the Financial Market, submitted a draft law "On amendments to certain legislative acts of the Russian Federation related to introduction of the digital ruble" to the parliament. The document is intended to form the legal basis for the introduction of the digital ruble into circulation.

On March 16, 2023, the bill was adopted in the first reading. It was amended for consideration in the second and third readings. In particular, concessions were introduced for non-residents. The Bank of Russia was assigned as the operator of the platform. On July 11, the law was adopted by the State Duma, the lower house of parliament, immediately in the second and third readings, and on July 19 it was approved by the Federation Council, the upper house of parliament.

The law will come into force on August 1, 2023. The rules for transactions with the digital ruble will be approved by the Board of Directors of the Bank of Russia.