The Bank of Russia (BoR) has recently unveiled its business model for the implementation of a central bank digital currency (CBDC), specifically the digital ruble, marking a significant step forward in its efforts to modernise the country's financial systems amidst ongoing economic sanctions. This model introduces free consumer-to-consumer transactions, aiming to foster widespread adoption of the digital currency upon its expected launch in the first half of 2024.
The BoR's decision to accelerate the development of the digital ruble can largely be attributed to the sanctions imposed on Russia following its military actions in Ukraine, which rendered many traditional banking operations more challenging. The central bank believes that low or zero transaction fees will attract both consumers and businesses to the digital ruble, as digital payment trends show a notable increase in Russia—rising from 38% of total transactions in early 2017 to 63% by the first quarter of 2023.
Under the new model, while consumer-to-consumer (C2C) payments will remain free indefinitely, other forms of transactions will incur fees after a one-year grace period. Specifically, consumer-to-business (C2B) payments will have a fee of up to 0.3%, capped at approximately $14.34. For business-to-business (B2B) transactions, a flat fee of 15 rubles (about $0.14) will be charged, with a portion being distributed to payment service operators.
However, not all parties are in favour of the digital ruble. Numerous banks across Russia have expressed opposition to the model, fearing that it poses a threat to their sustainability by undermining traditional banking operations. Anatoly Kozlachkov, the head of the Association of Russian Banks (ABR), spoke to Parliament, highlighting the substantial costs associated with implementing the digital currency, which he suggested could reach up to 100 million rubles ($1 million) per bank. He called for adjustments to be made to the existing costs to accommodate the specific needs of various banking institutions.
Beyond the financial implications, banks have raised concerns over the potential for liquidity to drain away from the traditional sector once the CBDC is operational. Comparisons have been drawn with practices in other economies, such as the European Union’s proposed caps on the amount held in digital currencies, which currently aim to limit users' holdings to ensure banks remain integral to the financial ecosystem.
Conversely, some government officials have dismissed the dissent from banks. Anatoly Aksakov, head of the State Duma Committee on Financial Markets, remarked that he struggles to understand the banks’ resistance to the digital ruble and has previously suggested that the need for banks might significantly diminish once the new currency is introduced.
In other developments within Russia's burgeoning financial technology landscape, T-Bank, the country’s largest neo-bank, is poised to offer new tokenised investment services starting next year. Having secured a license from the BoR in March, T-Bank plans to partner with Atomyze, a local tokenisation firm, to create tokens representing various financial assets, including those from small and medium-sized enterprises and art.
These innovations are set to be built on a private blockchain overseen by the central bank and are seen by T-Bank as a means to reduce costs and offer new financial products that are not currently available in the traditional market. T-Bank, which was founded by Oleg Tinkov in 2006, will provide retail clients with access to this new trading infrastructure within a few months, while professional clients may begin trading even sooner.
The developments surrounding the digital ruble and tokenised investments signal Russia's forward-looking approach in navigating its current economic climate, even as traditional banking institutions express concerns about their future viability in the face of rapid digital transformation.
Source: Noah Wire Services