- The introduction of a digital ruble may result in banks losing up to $715 million annually
- Consumers using the digital ruble may not receive any interest on their balances or cashback for their transactions
- The pilot phase started in January 2022, with a full launch planned for 2024
Russia has been a fascinating country when it comes to digital currency. Before the war, cryptocurrency was a powerhouse in terms of trading volumes. However, the government has been divisive regarding the use of Bitcoin.
On the one hand, the Russian government has expressed interest in developing its central bank digital currency (CBDC), the digital ruble, as a payment and store of value. On the other hand, it has also imposed restrictions on using cryptocurrencies and initial coin offerings (ICOs) as financing.
On June 2022, Vladimir Putin declared cryptocurrency transactions illegal. Fast forward to today, the Bank of Russia is pushing the digital ruble as a standard legal tender to enforce it upon civilians who still make crypto payments.
Ironically, the CBDC may lead to a massive loss for the central bank, according to analysts. According to a report from Yakov & Partners, the country’s commercial banks might lose approximately $715 million from it.
Yakov & Partners, formerly McKinsey, said, “It has no obvious advantages in terms of convenience of everyday use, and it is not as profitable for end users as other means of payment since it does not involve accrual of interest on the balance and, most likely, cashback.”
As for retail companies, they might benefit from the ordeal as the CBDC could help them boost their income by around 80 billion rubles (approximately $1,128,175). However, as a catch, buyers will most likely not receive interest on their bank accounts or cashback if they participate in a digital fiat transaction.
Local experts believe the CBDC may be commonly used in domestic retail markets, which could overshadow card transactions. Ultimately, the reduced revenues from commissioned payments will result in massive losses for the bank.
Digital Ruble will Not Replace Bank Payments
As much as the Russian CBDC becomes part of the country’s legal tender, the Bank of Russia says it does not replace deposits or a form of storage. Cash and electric money will still be the primary means for transactions, while the CBDC will act as the last option.
Russian citizens have limited access to global finances after overseas financial firms discontinue their payment services. Western allies penalized Russia after it declared war against its neighbor, Ukraine.
Since the war began, the Russian central bank slowly lost interest in crypto payments until President Putin made the cryptocurrency ban official.
The digital ruble was announced on October 2020. Then, authorities started a pilot on January 2022, seeking which businesses it would benefit from. Experts say that consumer-to-business (C2B) firms will gain the upper hand.
By April 2023, the CBDC will begin its public testing for citizens before its full release next year.
