James Cirrone

Next week, the Bank of Russia will begin testing out real world transactions with its digital ruble, a central bank digital currency that was <a href="https://blockworks.co/news/putin-approves-russia-digital-ruble">approved by President Vladimir Putin in late July</a>.



Thirteen banks — <a href="http://www.cbr.ru/fintech/dr/#a_123392">excluding</a> Russian banks Sberbank and Tinkoff — will be involved in the pilot testing program. These institutions will be able to make payments with the <a href="https://blockworks.co/tag/cbdc">CBDC</a> at “30 points of sale located in 11 Russian cities,” according to a <a href="http://www.cbr.ru/eng/press/event/?id=16993">statement</a> released Wednesday by the nation’s central bank.



If their tests are successful, individuals and businesses should be able to use the digital ruble by 2025, according to Bank of Russia first deputy governor Olga Skorobogatova.



Skorobogatova also reiterated governor Elvira Nabiullina’s <a href="https://ria.ru/20230721/rubl-1885538360.html">statement</a> that the use of the eventual digital ruble would not be mandatory or compelled by the government. 



In the meantime, the pilot program wants to ensure that the infrastructure surrounding the CBDC is functioning and user-friendly before rolling it out for retail and business use.



“The first stage of the pilot testing is intended to check all basic transactions, including opening of digital ruble accounts [digital wallets] and money transfers to them, person-to-person digital ruble transfers, simple automatic bill payments and QR code-based payments for goods and services,” the central bank explained.



New functionality planned for next year includes dynamic QR-code based payments and business-to-business digital ruble transfers.&nbsp;



The list of participants in the pilot program is also forecasted to increase until the end of the year, the Bank of Russia said.



Once the digital ruble is actually in possession of the country’s populace, Russia will become the largest country among 11 other nations that have actually instituted a CBDC, according to the Atlantic Council’s CBDC <a href="https://www.atlanticcouncil.org/cbdctracker/">tracker</a>.



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CBDC

Russia to commence digital ruble pilot testing with 13 banks

Casey Wagner

<div id="highlights-block_621e986ae81e4" class="highlights">
 <ul>
 <li>Increasingly aggressive sanctions will lead to trouble for Russian economy, currency, experts say</li>
 <li>Banking group says Russian de-dollarization has been happening since 2014</li>
 </ul>
 
</div>



Under pressure from unprecedented Western sanctions, Russia’s increased likelihood of defaulting on its foreign debt payments have economists eyeing the role of the digital ruble in reshaping the country’s economy.



Western nations have launched unprecedented sanctions against Russia in recent days, leading to an increased likelihood that the country will default on its foreign debt obligations, the Institute of International Finance (IIF) said Monday.



In a <a href="https://www.iif.com/Portals/0/Files/content/IIF_RussiaSanctionsPaper_2022.pdf?_cldee=Y2FzZXlAYmxvY2t3b3Jrcy5jbw%3d%3d&amp;recipientid=contact-fcc886d04c2bec1180f8000d3a0f728a-09d0432ca4db4741ad4a61075e3bd6f8&amp;utm_source=ClickDimensions&amp;utm_medium=email&amp;utm_campaign=Press%20Emails&amp;esid=9f7614b6-0a98-ec11-b400-00224832e766" target="_blank" rel="noreferrer noopener">report</a> Monday, the institute said its economists expect “the cumulative effect of sanctions on the Russian economy to be strong, leading to a sizeable contraction of output this year.”



Russia’s central bank more than doubled interest rates to 20% Monday in an attempt to limit inflation and ruble depreciation. More than half of Russia’s foreign exchange reserves are held in countries that have imposed sanctions and frozen assets, limiting the central bank’s options.



&#8220;If we stay here and [the situation] escalates, then default and restructuring is likely,&#8221; said Elina Ribakova, the IIF’s deputy chief economist, told reporters Monday.



Russia has been in the process of de-dollarization since 2014, the IIF said. The Bank of Russia has reduced the share of its reserve assets in US dollars and its holdings of US Treasurys significantly, with gold now surpassing US dollars in Russia’s reserves.



In early 2014, US dollars accounted for 43% of Russian reserves and 16% in mid-2021, according to the IIF.



The introduction of a digital ruble, the central bank digital currency that Russia is now piloting, is thought to further curtail the dollar’s influence — and potentially dull the blow of US sanctions.



“Similar to how Covid accelerated a lot of digital economy and stay-at-work adoption, this aggression by Russia and the West&#8217;s response in terms of sanctions and freezing of reserves, might accelerate the adoption of alternative payment channels and self-custodial stores of value,” Lyn Alden, founder of Lyn Alden Investment Strategies, said.



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Digital Ruble Likely To Help Russia Move Away From US Dollar, Economists Say

Ben Strack

<div id="highlights-block_6210035252a70" class="highlights">
 <ul>
 <li>Russia’s Ministry of Finance has reportedly begun accepting public comments on rules around digital asset transactions</li>
 <li>The Bank of Russia completed the prototype of its digital ruble platform in December, and 12 banks agreed to test the platform</li>
 </ul>
 
</div>



As Russia mulls rolling out a state-sponsored digital ruble, crypto regulations more broadly remain up in the air amid clashes between the country’s central bank and finance ministry.&nbsp;



A crypto bill appears to still be in the works, and Russia’s Ministry of Finance has <a href="https://regulation.gov.ru/projects#npa=125083" target="_blank" rel="noreferrer noopener">signaled</a> that it is seeking public comments until March 18 on rules around digital asset transactions.&nbsp;



Nick du Cros, head of compliance and regulatory affairs at digital asset manager CoinShares, called the potential of a bill this year “a significant positive development.”



“The central bank doesn&#8217;t hold the pen on the draft legislation, so it will need to lobby very hard for the legislation to reflect its point of view,” du Cros told Blockworks. “As it looks now, the central bank&#8217;s view that there should be an outright ban on crypto and crypto mining looks less likely than Russian-centric regulation which allows crypto to exist with the current banking network.”



Russian Finance Minister Anton Siluanov said Friday that he hopes such a bill passes before the end of the year, <a href="https://www.reuters.com/article/idUSR4N2UR004" target="_blank" rel="noreferrer noopener">according to Reuters</a>.



The Russian government and central bank last week <a href="https://cms.blockworks.co/russias-move-to-regulate-cryptocurrency-puts-other-countries-on-notice/" target="_blank" rel="noreferrer noopener">reached an agreement</a> to draft legislation or amend existing laws recognizing crypto as currency. News outlet <a href="https://www.kommersant.ru/doc/5206307" target="_blank" rel="noreferrer noopener">Kommersant reported</a> that legislation would be drawn up by Feb. 18.



Bloomberg News <a href="https://www.bloomberg.com/news/articles/2022-02-15/nabiullina-digs-heels-in-over-russian-plan-to-legalize-crypto" target="_blank" rel="noreferrer noopener">reported</a> that government officials at the Bank of Russia and the Ministry of Finance did not reach an agreement on the best path forward on Tuesday.&nbsp;



The central bank had previously <a href="https://cms.blockworks.co/proposed-russian-crypto-ban-may-push-miners-west/" target="_blank" rel="noreferrer noopener">proposed to restrict miners</a> and crypto trading over concerns that they could endanger the country’s financial system. President Vladimir Putin has said he supports a plan to tax and regulate the space.



The Bank of Russia, meanwhile, launched a prototype of its digital ruble platform in December, with 12 banks agreeing to test it. Three banks have connected to the platform, the bank said Tuesday, with two completing digital ruble transactions between clients via mobile applications.



Focusing first on the digital ruble before opening up the system to other currencies could give the country a leg-up in the market, Stan Miroshnik, partner at growth equity fund 10T, told Blockworks.



Noting a parallel to China’s <a href="https://cms.blockworks.co/china-debuts-digital-yuan-at-winter-olympics-amid-warnings-from-us-senator/" target="_blank" rel="noreferrer noopener">digital yuan</a>, Miroshnik said the state-sponsored cryptocurrency helped phase out other speculative digital assets.



“To the extent you want to create your own dominant digital asset that the central bank has control of…I think that’s the playbook,” Miroshnik said. “I think that’s the tension we’re seeing playing out.”



The latest draft legislation has been published while the G-20 Finance Ministers and Central Bank Governor Meeting takes place, du Cros said, adding that the timing indicates Russia is more interested in “bespoke” regulations over international crypto standards.



The Bank of Russia and Ministry of Finance did not immediately return a request for comment.



<a href="https://cms.blockworks.co/ukraine-passes-law-legalizing-crypto-as-threat-of-war-looms/">Ukraine passed amendments to its law</a> on digital assets to ratify the eventual creation of a legal market for cryptocurrencies as the threat of an invasion by Russia looms.



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