Experts have proposed a digital ruble for settlements of post-Soviet countries

In the post-Soviet space, it is possible to create at first a test platform for cross-border payments using digital currencies, experts from the Stolypin Institute suggested.The system would reduce sanctions risks

The digital ruble , which the Bank of RUSSIA planned to start testing in real conditions in 2023, can be used in domestic and cross-border settlements, as well as in the budget process in the future. This is stated in a report on the prospects of the digital ruble (available from RBC), prepared by experts from the P.A. Stolypin and Soyuz Bank (the bank is one of the participants in testing the digital ruble).

The authors of the study believe that the digital ruble, or “cryptoruble”, can become a convenient, fast and secure way to make cross-border payments in the face of sanctions pressure. The digital currency could theoretically help create a closed loop for Russia's settlements with friendly states and avoid sanctions, follows from the report.

Platform for friendly countries

“In Russia and the post-Soviet space (for example, within the framework of the EAEU ), as well as within the framework of the BRICS association ( Brazil , Russia , India, CHINA , South Africa. -) it would be possible to create a similar platform for testing different options for cross-border payments involving not only central banks, but also commercial banks, as well as the largest enterprises of the respective countries,” the study says.

They describe the settlement model as follows: a Russian exporter delivers goods to one of the countries participating in the project, and the importer of this goods pays for the delivery to a Russian commercial bank either in digital rubles or in the state digital currency of another country, for example, digital yuan. The exporter can store the received digital rubles on his digital wallet at the Bank of Russia or exchange for regular rubles. If he received the digital currency of another country, he will be able to exchange it in the Russian Central Bank for digital rubles at the official rate, and then either store it on a digital wallet in the Central Bank or exchange it for ordinary rubles.

If a Russian importer pays for a delivery from another country, he will first have to exchange ordinary rubles in the Central Bank either for digital rubles or for the digital currency of the supplier's country and pay for the delivery either in digital rubles or in digital yuan by transferring the appropriate currency to a Chinese bank participating in the project.

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Thus, “the problem of accessing commercial banks to digital currencies of other countries is easily solved, since it takes place on the platform of central banks,” the authors of the report point out. In their opinion, such a platform could be created on the basis of intergovernmental agreements.

In practice, only pilot projects of cross-border settlements with state digital currencies are currently known. The digital yuan is still used only in the territory of the PRC for internal settlements (in 2021, the Central Bank of China stated that it would “study the applicability of the digital currency in cross-border scenarios”, .pdf). Both in Russia itself and within the framework of the EAEU, even the projects for launching state digital currencies within countries are at the testing stage, experts of the Stolypin Institute and Soyuz Bank emphasize.

According to The Economist, 114 countries have either launched central bank digital currencies (CBDCs) or are exploring their use. Digital currencies do not provide for the accrual of interest and do not incur any transaction costs. Some central banks have abandoned the idea of ​​a digital currency: for example, the Danish central bank stated (.pdf) that “there is no reason to believe that a retail CBDC will facilitate more efficient and reliable access to payments.” “Digital currencies are not just the future, they have already become a reality that will change the world of finance,” Stanislav Danysh, Chairman of the Board of Soyuz Bank, told RBC.

Sanction risks

The use of the digital ruble (compared to the conventional ruble) in cross-border settlements “assumes an increase in Russia’s sovereignty in carrying out cross-border financial transactions and a reduction in dependence on foreign payment systems and platforms such as SWIFT,” and also “will significantly reduce sanctions risks,” the authors say report. Sanctions , they explain, will be practically excluded in the sense that neither Russia nor its partners using state digital currencies for settlements with each other, unfriendly countries will be able to disconnect from any national or international payment systems, block or arrest payments.

At the same time, the risk of secondary sanctions against commercial organizations connected to the platform, or in general sanctions against the central banks of Russia-friendly countries due to settlements in digital rubles, “which can be interpreted by unfriendly countries as helping Russia to circumvent sanctions, cannot be ruled out.” . Experts also expect "political pressure on central banks and governments of friendly countries." Since early 2023, U.S. officials have been warning countries such as Turkey and the UAE that their economic and financial ties to Moscow are hindering the enforcement of Western sanctions against Russia.

The digital ruble is the third form of the ruble, in addition to cash and non-cash money, the Bank of Russia explained. A citizen or company will have one digital wallet, and access to it will be through any bank in which he or she is serviced (traditional non-cash accounts are separate in each bank). “We do not plan to rush with a wide introduction. First, we need to conduct a pilot on real digital rubles with real clients, work out basic operations with banks (opening and closing digital wallets, transferring digital rubles between citizens, paying for purchases and services using a QR code),” the Central Bank said.

The scale of distribution of the digital ruble

The future demand for the digital ruble in cross-border settlements will directly depend on the demand for the ordinary ruble in international settlements, the authors of the study note. President Vladimir Putin said that by the beginning of 2023, the share of the ruble in Russia's international settlements had doubled compared to December 2021 and amounted to one third. But two-thirds of the calculations were still carried out in other currencies, emphasize the Institute for Growth Economics. According to their forecasts, in about two to four years, the share of the ruble may increase to approximately 50% of Russia's international settlements.

The central banks of friendly countries will have a question - what to do with digital rubles. “Countries friendly to Russia can use digital rubles in the future to pay for the supply of raw materials and goods from Russia, but other areas of using the Russian state digital currency still raise many questions,” the authors admit.

If we assume that the digital ruble will be put into circulation in 2025, and can be used in international settlements no earlier than one or two years after it is put into circulation, then in 2026–2027 the share of the digital ruble in foreign trade turnover will be extremely small - will not exceed 0.1-0.5%, the forecast is given in the study. However, in the future, its share will grow "at a very high pace", and by 2030 it may amount to at least 1-5% of Russia's foreign trade turnover, experts argue. RBC sent a request to the Bank of Russia.

Conditions for starting external settlements

From a technological point of view, the digital ruble is indeed a convenient means of international settlements, agrees Victor Dostov, chairman of the board of the Association of Electronic Money Market Participants and Money Transfers. Now several models are being actively developed, ranging from the introduction of a single digital currency between the BRICS countries and ending with the creation of so-called bridges - exchangers between national digital currencies, he notes.

Dostov considers the forecast of the Institute for the Economics of Growth regarding the start of using the digital ruble in cross-border settlements approximately in 2026–2027 as quite realistic. “If we have settlements with conditional China in the ruble-yuan pair, which are now going through correspondent accounts, then I see no reason why these settlements could not go through the digital currencies of central banks, if it would be more convenient and cheaper. In fact, this is not a fundamental restructuring of the entire structure, but the replacement of rails with more convenient ones,” he says.

Technological accessibility, however, does not remove traditional problems, the expert warns. Thus, the problem of secondary sanctions remains; in addition, liquidity arrangements across countries will need to be carefully balanced.

In order to launch cross-border settlements in digital currencies, a legislative framework is needed that allows such operations, as well as intergovernmental agreements and agreements between central banks, argues the HEAD of the scientific laboratory "Research of the monetary system and analysis of financial markets" of the Russian University of Economics. Plekhanov Denis Domaschenko. “Until 2026, it is quite realistic to create it if an appropriate roadmap for the introduction of such mechanisms and its dynamic implementation in the future is ready. Provided that local regulations at the level of foreign trade departments and currency control norms are synchronized, the central banks of friendly countries will be interested in cross-border settlements in the digital ruble,” he is convinced.

The scheme looks realistic if it is possible to achieve synchronization of digital currency platforms or open a digital wallet for the digital ruble to trading partners, agrees Yegor Krivosheya, head of the Skolkovo blockchain and fintech laboratory. “Most likely, those countries that already work with the Russian financial infrastructure can be among the first to connect to such a platform, for example, banks that are connected to SPFS (Financial Message Transfer System, similar to SWIFT) or FPS (Central Bank Fast Payment System) . Otherwise, such a settlement scheme can solve the technical difficulties of mutual settlements, removing the need to use SWIFT for mutual settlements,” he believes.

Opportunities in the domestic market

For settlements within the country, it will be possible to use the digital ruble quite easily, the authors of the report say. So, to pay for a purchase, you will need to put money on a digital wallet, select a store or service company participating in the digital ruble testing project, select a product or service there and pay for the purchase through the bank’s mobile application, provided that it participates in testing the digital currency.

Legal entities will be able to use the digital ruble for settlements with contractors, the state, and for paying salaries to employees.

The state will be able to use the digital ruble in the budget process for settlements at the federal and regional levels, as well as for paying salaries to public sector employees, pensions and social benefits, the authors list. In their opinion, technically it will be easy to set up the process, since the accounts of the Federal Treasury are in the Bank of Russia, respectively, the Treasury will not have restrictions on the exchange of ordinary non-cash rubles for digital ones.

Paying salaries to state employees, pensions and benefits in digital currency can make it easier to serve people who have difficulty accessing banks. In 2022, nearly 12 million pensioners received their pensions in cash only, the vast majority of them at post offices, the report notes. The payment of pensions in digital rubles, which “due to their characteristics, actually turn out to be much closer to cash than to traditional non-cash money,” will simplify servicing pensioners in a number of regions. The report clarifies that there are technologies for using digital currency for payment even in the absence of the Internet.

The authors of the report also predict that the use of the digital ruble, due to the transparency of processes, will increase the collection of taxes and strengthen control over the spending of public funds, since the history of all transactions will be recorded and stored on the blockchain platform of the Bank of Russia. In addition, the digital ruble can increase the efficiency of public procurement and targeted financing of national construction projects, make transactions more transparent, allowing the state to better fight illegal income and the financing of criminal activities. The authors also suggest that the digital ruble can be effectively used in the securities market as a faster and more convenient means of payment.