Russia changes the payment system, introduces a digital currency, reduces the costs of money trading and constructs an independent global payment strategy from the west. The Russian state enters the area of digital money, utilizing revolutionary technologies.
On 1 August Russia introduced a digital ruble into the cash circulation. This is simply a unique electronic code (token) – a 3rd form of Russian currency: after cash and banking (no cash). This is their analogue of the same value, not replacing them, but replacing each of them with 1 to one.
What's the difference between cryptocurrency based on the same blockchain technology? The digital money of the central bank (CBDC central bank digital currency) is the exact other of the cryptocurrency, which is an uncontrollable issue of money. The issuer of CBDC is the State and it protects it with assets, mainly gold-currency reserves. Besides, blockchain technology proved immature adequate that Russia did not decide to base its payment strategy on it. Therefore, a hybrid solution – a centralised IT strategy combined with blockchain was used.
A small painful story.
Russia is in the vanguard of restoring power to the state over money. Banks and financial institutions are now in control of credit and non-cash money trading, which benefit greatly. The usage of cash fades (cash-free transactions in Russia are over 80%).
Russia experienced this dominance painfully erstwhile owners of global payment card systems – Visa (until 1976 Bank AmericaCard, in 1958 appointed by Bank of America) and MasterCard (also American global corporation) – in 2014 tried to cut Russians off from access to card payments. Then the work to process data and transactions in the country was introduced. And in 2015, Russian MIR cards were introduced, which completely changed the scenery of electronic money. So erstwhile global payment companies abandoned Russia in 2022, citizens did not feel it in their wallet.
Russia has been upgrading its banking and payment strategy for years, carefully pulling it out of the fall of the 1990s. late (2019) a state immediate payment strategy has been introduced, allowing instant transactions between accounts held at various banks. It is the equivalent of Express Elixir, introduced in Poland in 2012. The bank of Russia created its own immediate payment system, where most points pay 0.4% and the fee reaches 0.7%. Competition was created for monopolised payment services, importantly reducing their costs to the economy.
A good fewer years have been working on the digital currency, and the operational concept was established in October 2020 and the implementation decision was taken in April 2021. It took 2 years, twice as short as China.
How does it work?
‘Digital’ can be done in akin operations as cashless or cashless: transfer, pay, accept payments. It's just a token shift from 1 wallet to another. The owners of the digital ruble can freely change the form of the funds they own, from digital to electronic money in the bank, to collect cash from it. However, you cannot make a deposit or receive credit in a digital ruble. Bye.
It differs from the non-cash form by the fact that (like each banknote) it has its markings – a unique code for identification. It will so be a useful tool for eliminating the shadow economy and corruption, as the full digital currency way has left behind an electronic way that can be traced since its inception.
Users will be able to usage digital currency through the applications of their banks, and by paying for the goods – scan the QR code at the box office. For transfer to another person's account – the telephone number of the recipient is used. presently only those willing for retail buying usage it, next year transfers will be available to legal persons, the mass usage of digital ruble is expected to take place in 2025. The Russian bank has launched a platform where all citizen and company can set up their own portfolio (only one) and manage the money without the request to establish a bank account. Now it takes time to tune up the system, and users are utilized to a fresh form of money.
In Russia, they focus on a smooth transition to a full-scale fresh currency form. present you can transfer to your digital wallet at the Bank of Russia at most 13 1000 PLN per month. The Russian State does not plan to destruct any form of money, whether cash or bank. All can coexist, users will choose which ones are most useful for.
Advantages of digital ruble
The main advantage of the digital ruble is to reduce payment costs, you can see it in the price list of the Russian Bank's fees. For private operations there are no fees and there is assurance that they will never be introduced. For legal persons – 65 groszy, for buying points are 0.3% (but not more than 1500 rubles = 65 zł). For municipal service providers even little (0.2%, no more than 40 grosz). This will put force on today's players (banks), expanding the competitiveness of the financial sector. The Russian State besides expects to reduce the cost of administering the budget, which is simply a immense part of the money trade, and destruct the grey zone.
Operations on the digital ruble platform are performed 24 hours a day with immediate effect. This will surely benefit businesses, trade networks, which will bypass the mandatory intermediary, which present uses its monopolistic position. The profits of these players were valued at importantly higher than the losses of banks.
It is only in the second phase that off-line operations (without net access) are to be introduced, as there are no yet mature, reliable technologies for specified operations. But erstwhile they enter, it will be a large chance to access financial services for sparsely populated areas (and specified in Russia there are no shortages), where commercial banks do not pay to open up business. The advantage of digital money is besides much greater its security, guaranteed by the issuer – the state. Today, banks do not supply specified security.
Banks at risk
For banks, the digital currency is simply a challenge, a fresh competitor where they must effort harder: to lower costs, to increase the quality of services and benefits for customers. Therefore, they will lose quite a few money (it was estimated to be a billion dollars a year). But banks in Russia are not a sacred cattle (other than in the west) – the state insists that they lower transaction fees and rise deposit rates.
Digital money is not a means of investment or credit, so for now they can operate on today's terms. But the question is, how long? Anyway, the golden days are over. Today, if you want to usage electronic money, you gotta usage the mandatory intermediation of banks, which they evidently use: they do not pay very well for the funds stored in them, they besides impose restrictions on the usage of money (e.g. transfer limits, fees) that people store in banks. With a digital alternative, banks will either face a choice, or accept the failure of funds that will flow into central bank accounts or offer more favourable terms to customers.
While banks are inactive needed erstwhile beginning accounts of citizens and legal entities in the Bank of Russia, the digital ruble flows straight from the buyer's account to the seller without any request for a bank or payment cards.
By weakening banks, the digital ruble gives you not only a control tool, not only accelerates and reduces the costs of money trading, but besides allows investment without the participation of financial markets. These decide on private capital investments in ventures, which give investors adequate returns, but importantly increase infrastructure costs. The digital ruble will activate state investment backing for public purposes and infrastructure construction. Energy (production power and networks), roads, bridges, airports, communications, but besides technological and technological improvement or social services specified as wellness or education. Of course, specified emissions are limited by the availability of work, means of production or technology. But low costs and bypassing bank financing, give you the chance to straight credit projects in strategical industries.
Against Global Repression
For Russia, the urgent nonsubjective is to become independent of the strategy of global payments, which has become a tool of repression against it, cutting off from the global market. Internationalisation of digital currencies will aid bypass SWIFT. This dominant settlement platform between banks could lose its importance. Russia is counting on these changes, as many Russian banks have been cut off from the global payment system. They so request a transactional system, independent of the West. Trade in rupees, yuan or rubles is an effective tactical remedy for dollar restrictions, avoiding American control over financial and commercial operations.
But moving further into the future, the strategical goal is digital currencies, independent of planet reserve currencies. It would indeed be a revolution on a global scale. Only today, these another digital currencies do not exist, although Russia's biggest trading partners are already moving pilot programmes: India is investigating a fresh form of money in major cities, China similarly, in addition to transferring payments to state workers in electronic yuan. However, extremist change will come to await.
Andrzej Szczęsniak
Think Poland, No. 33-34 (13-20.08.2023)
