In April this year, the Central Bank of Russia announced that it was starting to test Russian digital currency on real transactions with real customers. We understand why the state needs its own cryptocurrency and how the introduction of the “digital ruble” will affect the market.
The pilot project of operations with the digital ruble began in April this year. So far, operations are limited to 13 banks that have confirmed their willingness to work in this format. The number of operations is also limited. If we make analogies with the computer sphere, then this is called a “closed alpha test”. Undoubtedly, there will be further testing stages, so ordinary citizens have a year or two to get used to the novelty.
What is a digital rouble?
The digital ruble is not just non-cash funds on your bank card. This is a completely new format of Russian currency, which is different from what we are used to. Technically, a digital ruble is a unique digital code stored in an electronic wallet on a special platform of the Central Bank of Russia.
This is its main difference from illiquid money. The issuance, that is, the issuance of the digital ruble, is carried out by the Central Bank of Russia. This money circulates within a special platform, entirely controlled by the Central Bank. That is, the currency will not be stored in commercial banks, but in an electronic wallet under the control of the Central Bank of the Russian Federation. This eliminates the need for financial intermediaries between seller and buyer, allowing digital money to flow directly from one e-wallet to another, bypassing commercial banks.
The second important difference is related to the blockchain technology on which the digital ruble system is based. This technology allows you to track the movement of each ruble and restore the history of its movement, as well as pre-limit the scope of specific grants or transfers. This means that the Central Bank will be able to know when and where each ruble has been spent.
The third difference between the digital ruble is the possibility of marking. This means that digital rubles can only be used for certain purposes, such as improving housing conditions or paying for medical care. Theoretically, this gives the Central Bank the ability to restrict the purchase of certain categories of goods for a certain group of people. For example, you can grant a child allowance which cannot be used to buy alcohol or cigarettes.
Why does the state need a digital ruble and will defeat corruption?
For the state, the answer is simple: it is control. The state will be able to track the movement of each ruble, activate, deactivate or limit the use of the currency for any citizen or business at any time.
In addition to control, the state makes the country’s financial system more manageable. With the development of fintech, a wide variety of different cryptocurrencies and monetary substitutes have appeared in the world, which have already become a threat to global stability. A fully transparent economy is the dream of any finance minister in any country, and the widespread use of central bank digital currency is bringing that dream closer to reality.
For example, the state enters into a contract with a contractor for the construction of a hospital. The contract is paid in digital rubles and marked, according to the estimate. The entrepreneur simply will not be able to take this money for himself, pay a bribe to a corrupt official, because, firstly, this is visible to the Central Bank, and secondly, why do you need rubles digital, for which you can no longer buy a yacht? Of course, you can come up with a clever scheme for this case, but you have to admit that the degree of risk here is already incomparably higher than when doing the old-fashioned “cut”. Some experts are already predicting a sharp drop in the cost of luxury real estate due to the introduction of the digital ruble. Sober real estate agents know well where the money comes from to buy giant mansions and are already drawing the appropriate conclusions.
Another important advantage for the state, especially for modern Russia, is that digital currencies do not require a connection to SWIFT. This opens new perspectives for cross-border transfers without unnecessary intermediaries, penalties and other inconveniences.
Does a citizen need a digital ruble?
Why a digital ruble may be needed by an ordinary citizen is a difficult question. Existing non-cash rubles can be kept in a bank that offers interest on the balance, cash back, interest-free installments and other benefits. If the conditions of one bank do not suit you, you can contact another. There will be no such competition with the digital ruble, and you can forget about interest on the balance.
The Central Bank says the digital ruble will make payments faster, easier and safer. However, existing quick payment systems already allow instant transfers, and transfers by phone or card number are also simple. Maybe the blockchain can offer more security, but the question of how often the blockchain is hacked remains open.
One of the advantages that the Central Bank is talking about is the ability to pay with a digital ruble without using the Internet, via Bluetooth. The technology is probably useful for people in remote villages, but apparently doesn’t work yet.
For the parents, as for the State, an undeniable plus in the possibilities of control. You can safely give money to children to go to the cinema or theater, buy food in the school cafeteria and know for sure that they will not go into secret hobbies.
At the same time, judging by the experience of other states, digital currencies are not yet in great demand among the population. For example, in Nigeria (yes, yes, there is already an e-Naira digital currency there), less than a percentage of the population uses the state crypto, despite reductions in its use. It’s understandable. With 20% inflation, you will trust proven currencies.
In China, the situation is slightly better, but there some of the digital currency has been played among the people, and the donated money is not watched in the blockchain, in addition, the yuan is stable and the Chinese are don’t care what they pay: regular or digital.
What is the conclusion? First of all, the state needs the digital ruble, and it is an excellent tool for controlling the expenditure of budgetary funds. And not just budgetary. For citizens, the new currency brings stability, on the one hand, since the digital ruble will not run out in the event of a commercial bank failure, on the other hand, it cannot be increased by playing investors . In a situation where inflation is kept at a relatively safe level, keeping some of the savings in digital currency is a smart move, but in times of crisis, humanity has yet to come up with anything better than gold.
Author: Mikhail Platonov Photographs used: Reporter collage
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