- President Vladamir Putin has signed into law a bill that will grant legal tender to the digital ruble.
- The central bank will begin tests of the digital Ruble from August 1, 2023
- Russians will be able to make payments from their digital wallets with the Central Bank’s platforms
President Vladamir Putin has signed into law a bill that will grant legal tender to the digital ruble. The Russian Federation has taken this move amid the intense Western Sanctions and the rising inflation arising from the war in Ukraine.
The new bill has granted legal authority to the Central Bank of Russia to operate the Central Bank Digital Currency. Additionally, the bill provides legal definitions for users and specifies how the banks will operate. Both houses of the Russian parliament (The state Duma and the Federal Council) passed the bill two weeks ago, awaiting President Putin’s signature that happened on July 24. The central bank will begin tests of the digital Ruble from August 1, 2023.
Russians will be able to make payments from their digital wallets with the Central Bank’s platforms or any of its associate bank partners. The central bank further reveals that the digital ruble will only be used for payments and transfers ad, not loans or deposits.
The digital ruble is not open to the general public just yet
In an interview with Forbes, Olga Skorobogatova, deputy governor of the Central Bank however, stated that the current development on the digital ruble will not take full launch up until 2025. Olga additionally stated the potential of a BRICS common currency. The idea is among the key agendas in the upcoming BRICS summit that will be held in South Africa in August.
The Russian Ruble is among the worst-performing currencies globally because of rising inflation. The Russian ruble is currently trading at 90.4 rubles to the dollar, compared to the 74.63 rubble in January 2022 before the invasion. The idea of the digital ruble has been floating around for years, but the urgency has been triggered by Western Sanctions.
Digital Ruble to Rival SWIFT
Initially, the digital ruble’s primary purpose was to facilitate domestic payments and transfers. However, the superpower looks inspired to use the CBDC for cross-border applications. They are essentially targeting to reduce the country’s exposure to the SWIFT (US-led system). The Society for Worldwide Interbank Financial Telecommunication (SWIFT) is a cooperative society that provides services related to the carrying out of financial transactions and payments between banks worldwide.
Since Russia invaded Ukraine in 2022, financial sanctions have made it quite difficult for Banks in Russia to do business with foreign counterparts. Additionally, their access to the US dollar has been cut off. The country has been left to find alternative currencies to facilitate trade.
Central Bank governor statement
Elvira Naibullina, Russia’s central bank governor, has said the government will force no one to adopt the digital ruble.
“If they want, they use it. If they don’t want to, they don’t use it,” Nabiullina said. “But we hope that it will be more convenient, cheaper for both people and business, and they will start using it.”
The governor further said that the pilot will take place in 2023, and 2024. Additionally, it will only engage 13 banks and a limited number of citizens and transactions. The Central Bank has rescheduled other trials due to the pending passage of necessary laws.
The Central Bank of Russia has hiked the interest rate to 8.5 per cent. Naibullana says that their economy is straining.
The global economic growth rate is slowing down, and this is reflected in the prices of Russian export goods. Gas, coal, and fertilizers are becoming cheaper on the global market. Russian exports are thus under double pressure – both from sanctions and the economic cycle.
Russia has a high determination to find a replacement for the US dollar. The digital ruble is a key component of their rebellion against the West.