Russia CBDC: Everything You Need To Know About the Digital Ruble

Russia, with a population of 146 million, is among the countries to jump into the central bank digital currency (CBDC) fray. After launching a trial stage, a Russian CBDC pilot program was set to debut April 2023. But the central bank hit a snag. 

While the Russian CBDC pilot program has been delayed, it’s only a matter of time before it makes its way into the population. We thought now would be a perfect time to explore everything you need to know about the Russia CBDC in 2023. 

Key Takeaways

• Bank of Russia plans to release a prototype CBDC called the digital ruble in 2021.
• The digital ruble would be built on a hybrid platform with distributed ledger technology and the Bank partnered with 12 banks to develop it.
• The Bank created a prototype platform in February 2022 and plans to beta test with select participants in 2023, with expected launch in 2024. An offline mode and integration with non-bank financial intermediaries is also expected in 2025.

Russia CBDC Mechanics

The kinks in the Russian CBDC are still being worked out. However, we have a glimpse into how it will be structured. More than a dozen Russian banks have signed on for the pilot program, and we know that smart contract products will be involved.

For example, Sinara Bank’s Vitaly Kopysov has stated "the use of smart contracts should reduce the operational load of banks and make the deals transparent, which not only will reduce the chances of the misuse of government and banks' funds, but ultimately simplify the control over the existing contracts

The Bank of Russia is also integrating what it considers targeting or coloring technology so that certain versions of the CBDC will be specifically programmed for certain types of transactions. They offer the explanation that it will make spending among the Russian population more efficient. 

Russia has reportedly been building its digital currency infrastructure on enterprise blockchains. Otherwise, data transacted would be accessible to the public. 

The BoR’s plan is to adopt two of a trio of models published by the Bank of International Settlements. China is reportedly first in line to partner with Russia on CBDC-fueled cross-border payments. Russia has come against some roadblocks in cross-border transactions due to sanctions imposed upon it by Western nations as a result of its war in Ukraine.  

Russia CBDC History

Russia has no interest in a stablecoin pegged to its fiat currency, the ruble. Instead, Russian officials including Deputy Finance Minister Alexey Moiseev got the wheels turning for the country’s own central bank-backed digital currency in 2020. They blamed it on the fact that ruble-backed stablecoins could be lost and deemed unrecoverable while a traceable Russian CBDC could not. 

The idea was to emulate the digital yuan, China’s CBDC by introducing a Russian CBDC that could be used by its citizens for payments. Russia is taking steps to decouple its economy from the U.S. dollar. 

Russia began building a CBDC prototype in 2021, which was completed by the end of that year. A trio of banks was selected to participate in the trial activities for the Russia CBDC in which wallets were opened and digital rubles were transferred to others. 

With 13 banks involved, a CBDC pilot program will depend on the use of smart contracts for the settlement of transactions to streamline the process. The program is expected to be expanded in the coming years to lasso credit institutions as well as non-traditional financial services providers. The idea is that 

At this time, Russia’s central bank was still testing and improving the digital ruble with a view to integrate it into the digital banking world. 

Russian CBDC Roadmap

Russia has had to tweak its timeline for the digital ruble a couple of times. After Russia invaded Ukraine, it was systematically removed from the SWIFT banking system. This placed a fire under their feet to build the Russian CBDC so that Western sanctions could not cramp its style any further. 

So they changed the proposed launch date of the CBDC to more consumers from 2024 to 2023. But that plan has proven to be too ambitious for the Russians.  

Russian CBDC Status

Last year, the Bank of Russia started testing the digital ruble even as policymakers were busy blocking bitcoin. The central bank began a trial in which select consumers were able to transfer the digital currency among a small group of participating banks. They gained access to digital wallets on their mobile devices and were able to convert Russian rubles into the digital version of the currency and spend it from there. 

The purpose of the trial period, in part, was to help policymakers learn how the Russian CBDC would gain scale. This trial was setting the stage for the pilot program in which Russians would be able to transact for goods and services with the Russian CBDC. Over a dozen banks were in the pipeline to support these transactions with the population. This is where the delays kick in. 

Russia CBDC Pilot Program Delayed

The BoR had plans to place the Russian CBDC in the hands of “real users” at the start of Q2 2023. However, credit institutions involved in the launch revealed that it would be delayed until the adoption of a new regulatory framework. The banks say they are ready to begin testing the CBDC. 

Legislation was stuck in the early reading stage, and the official testing can only get underway once the regulatory framework is approved. Lawmakers had no interest in launching the digital ruble under an “experimental legal regime.” 

With over a dozen banks involved, the CBDC pilot will depend on the use of smart contracts for the settlement of transactions to streamline the process. The program is expected to be expanded in the coming years to lasso credit institutions as well as non-traditional financial services providers. 

The Russian CBDC pilot program will likely be rolled out in April or May 2023. 

Russia has postponed the central bank digital currency (#CBDC) trial scheduled for April 1st and awaits a new regulatory framework to be adopted before the pilot. 🔎

— Whale Coin Talk (@WhaleCoinTalk) March 29, 2023

Conclusion 

All the while Russia has been testing the mettle of its digital ruble, officials also feverishly worked to block bitcoin and any proof-of-work mining behavior. They don’t want anything to upstage the Russian CBDC, not least of which includes leading cryptocurrency bitcoin or any private stablecoin pegged to the Russian ruble. One exception is that the BoR will support crypto in cross-border transactions considering it has been banned from the SWIFT network amid sanctions because of its war in Ukraine. 

Russia is hardly the only nation that is looking to store-of-value assets to skirt the financial sanctions imposed by fiat-issuing central banks. 

According to a recent paper by Harvard University, it is a rising trend. In the five years leading up to 2021, nations most at risk of U.S. sanctions bolstered their percentage of gold holdings in reserves vs. countries not facing those same risks. 

It is reasonable to assume that these economies could similarly hold bitcoin, which has gained a reputation as digital gold, for a similar purpose — “to serve as an alternative hedging asset,” as per the paper. It is worth noting that the  BRIC nations — Brazil, Russia, India, China, South Africa — plan to introduce their own global reserve currency based on a basket of top BRIC currencies. 

Meanwhile, Russia is also exploring the use of non-crypto digital assets in the issuance of debt instruments, including government bonds and other loans.