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Russia To Trial The Digital Ruble From April 2023

Posted: 14th October 2022 10:06

“The Digital Ruble is a replacement for the Cash Ruble” – Russian Deputy Minister of Finance Aleksey Moiseev on a new form of money.    

The Russian Ministry of Finance has begun discussing with the Central Bank options for using the Digital Ruble in the budget process. Deputy Finance Minister Alexei Moiseev said the next year, Russia plans to pilot this new form of its national currency. The Digital Ruble will allow the state to better track the targeted spending of budget funds, make targeted payments, and optimize the process of returning unspent money, the Central Bank said. They added that it would require the refinement of information systems, mutual integration of processes and expansion of the regulatory framework.

Digital Budget

The Digital Ruble is planned to be used in the 2023 budget process, and it will be a unique tool for controlling the spending of public funds, but first it must be regulated, Moiseev said. He added that the Ministry of Finance will participate in piloting a new form of national currency in 2023 , in addition, the department has already begun to discuss with the Central Bank how exactly the instrument will be used in the budget process.

The Digital Ruble will allow the state to increase the level of control over the targeted spending of money from the budget, make targeted payments, and also optimize the process of returning unspent funds , the regulator said. They added: at the current stage, together with banks, they are testing the opening of digital wallets, their replenishment, transfers between citizens and payment for goods and services.

The Digital Ruble is planned to be made an additional form of the Russian national currency along with cash and non-cash money. It will be issued by the Bank of Russia and stored as a digital code in electronic wallets on the platform of the Central Bank. It is assumed that commercial banks will conduct transactions with such money, Russians will have access to digital wallets through any credit institution.

Piloting on real consumers with Digital Rubles will begin in April 2023, the Bank of Russia said. After that, it is planned to gradually introduce, among other things, various types of state payments and operations, which will require joint work with the Ministry of Finance, the Treasury and other interested departments. In addition, refinement of information systems, mutual integration of processes and expansion of the regulatory framework will be necessary, the Central Bank said.

Earlier, the Central Bank reported that the introduction of the Digital Ruble would also make it possible to implement the “coloring” technology, that is, the ability to choose the intended use, for example, the types of goods and services for which it will be possible to pay with such funds. As a result, the efficiency of targeted public spending will increase, including within the framework of public procurement and government contracts.

Transparency and Speed

In the budget process, the Digital Ruble could be used to allocate maternity capital and other payments to various categories of the population , as well as targeted financing of state projects – for example, the construction of important infrastructure facilities, says Evgeny Koval, head of the Center for the Development of Technological Innovations at Gazprombank. He added: “Using the new form of the national currency , one can not only track where the allocated funds were spent due to their marking, but also form smart contracts for conducting similar transactions . Such a tool will increase the transparency of the distribution of money and speed up the same type of processes, and in some cases will reduce the number of intermediaries between counterparties, which will reduce the cost of the transaction.”

New Opportunities & Efficiencies

The Digital Ruble will create additional opportunities for the state and business, and banks will receive a new infrastructure for transfers, services and incentives to compete for customers , said Vitaly Kopysov, director of innovation at Sinara Bank (formerly SKB-bank). PSB and Sinara Bank have already successfully tested operations with a new form of national currency, the press services of the organizations reported. Gazprombank is now checking transactions between individuals, a bank representative said.

The new form of the national currency should retain all the advantages of cash, that is, allowing individuals to pay anonymously and without access to the Internet, otherwise the Russians will not use it, said Alexei Skorodumov, chairman of the board of Derzhava Bank. At the same time, at the stage of transferring money from individuals to legal entities, the Digital Ruble will improve the collection of taxes.

Experts also expect a positive effect from the introduction of the Digital Ruble in the budget process. It will allow you to control the expenditure of public funds by recording all transactions on the Central Bank platform, in the previous version, you would have to track all bank transfers of budget funds and recipients, Vladimir Chernov, an analyst at Freedom Finance Global, explained. In addition, such a system will speed up the return of unspent money due to full reporting on spending and account balances.  

Technical Benefits

The Digital Ruble is created using blockchain technology, which makes it possible to identify specific money, their movement according to individual digital codes, like banknote numbers, explained Mark Goykhman, chief economist at the TeleTrade information and analytical center. According to him, when such a currency is used in budget processes, it will not be “lost” in bank accounts, which will help avoid abuse, gray schemes, loss of money, and their withdrawal. This also applies to large government contracts with billions in turnover, and to the receipt of social payments to the poor, he noted.

The digital currency performs the function of fiat money with greater security of payments, explained Evgeny Mironyuk, an expert at BCS World of Investments. However, the reduction in the risks of using funds for other purposes is compensated for by the current incomplete legislative regulation and the possible low liquidity of the digital currency.

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