China showed the way, now Russia is rushing behind. The first practical tests with the central bank’s own digital currency are to take place as early as April 1st. 13 banks are starting out, which are to test the functionality of the digital ruble together with private households and retailers. In the coming year it could be so far that this will be introduced nationwide throughout the country.
CBDC: There are many reasons for digital ruble
With its war of aggression against Ukraine, Russia has been largely locked out of the important SWIFT network for international payments. At the same time, the risk of further capital outflows is increasing. Finally, the war economy in combination with the Western sanctions suggest that the ruble will likely continue to depreciate in the future. This increases the need for capital controls. At the same time, Russia is looking for ways to control and direct its own population more closely.
All reasons that speak for the introduction of a digital central bank currency that works independently of Western financial infrastructures and promises more control options thanks to its programmability.
Digital ruble: programmability more desire than reality
As promising as the CBDC functionalities may be for the Kremlin, they are likely to remain wishful thinking for the time being. Introducing the digital ruble across the board in the geographically largest country in the world is a mammoth task. Starting with the necessary digital affinity of the population, especially in the structurally weak periphery, to the integration into existing payment and processing systems.
A functioning programmability, which among other things enables targeted consumption impulses, is in all likelihood not yet feasible for the Kremlin. For example, during pilot tests in China, E-Yuan users were given a discount when using public transport. Monetary paternalism via the push of a button or program code will certainly remain a dream of the future in Russia for the time being.
Also, those who are critical of the Kremlin and wish to hide capital from it will find ways and means to continue to do so. Effective capital controls and identification of dissidents are initially difficult to implement.
Digital ruble: a bad copy of the Chinese e-yuan?
Unlike other currency areas, Russia is under pressure to quickly achieve success with the introduction of a CBDC. Against this background, it is not to be expected that the Russian concept for the digital ruble is already mature.
Rather, one should orientate oneself to the more competent China, which has significantly more experience in the implementation of CBDCs. The corrupt and inefficient administrative apparatus in Russia suggests that the first practical versions of the digital ruble will be a non-starter.