Russia could start testing its ‘digital ruble,’ a central bank digital currency (CBDC), in just a few weeks.
A bill granting legal authority to the central bank digital currency (CBDC) passed through the Federation Council, Russia’s higher legislative body, on Wednesday after previously working its way through the State Duma last week. The bill still requires President Vladimir Putin’s signature before coming into effect. If it is signed, tests of the CBDC will start from August 1.
Russia’s central bank will be granted the authority to act as the platform operator for the digital ruble if the legislation is enacted. The bill also provides legal definitions for users and how accounts with the bank are operated.
Its economy continues to struggle after it launched a war against Ukraine last year. This law also arrives at a time when Russia’s ruble is being battered by the raft of Western sanctions since the start of its war in Ukraine have cut into its value.
Under the bill, Russians will be able to make payments and transfers from their digital wallets that would be within the central bank’s platform or one of the partner banks that it will be working with. However, the CBDC can only be used for payments or transfers—not lending or deposits, according to the central bank.
Russia plowing ahead with its CBDC moves it in the same direction as other large economies that have launched pilots, including China and Japan. The United States has not moved past the research stage, but both the Biden administration and Federal Reserve have pondered the implications around launching a digital dollar.
Unlike a cryptocurrency like Bitcoin, a CBDC is a centralized token with a value tied to a national fiat currency. Critics of CBDCs argue that they carry major privacy risks, because of the level of visibility a government would be granted into private transactions.
In Russia, long considered a poster child for mass surveillance, the head of the central bank Elvira Nabiullina previously said privacy would be taken into account, but it would not allow “the same level of anonymity that is supported by cash transactions.”
After initially repulsing double digit hikes at the start of the war, the ruble’s exchange rate to the dollar has deteriorated, with the current rate standing at 91 rubles to USD.
A CBDC is sometimes touted as a hedge against more volatile national currencies. Today Russia’s ruble is considered to be one of the worst performing currencies amid rising inflation on top of Western sanctions.