Digital Ruble: From Concept to Reality, a Comprehensive Overview

The digital ruble is a concept that's been gaining traction in recent years. It's a digital currency issued by the Central Bank of Russia, designed to be a secure and efficient way to make transactions.

The digital ruble is built on distributed ledger technology, similar to blockchain. This allows for fast and secure transactions, reducing the need for intermediaries like banks.

The digital ruble is expected to be used for both retail and wholesale payments. It will also be used for cross-border transactions, making it easier for businesses to trade with international partners.

In 2020, the Central Bank of Russia conducted a series of tests to assess the feasibility of the digital ruble. The results showed promising results, with the digital ruble performing better than expected in terms of speed and security.

The development and testing of the digital ruble have been ongoing since 2020. The Central Bank of Russia announced the creation of a digital ruble in October 2020, which will be a centrally issued currency that can be used for payments, just like cash or credit cards.

The Central Bank has chosen a model where they open and maintain wallets for financial institutions, which then open and maintain wallets for clients. This was announced in April 2021. By the end of 2021, a platform for testing the digital ruble was planned to be created.

Twelve banks were selected to participate in the testing of the digital ruble in January 2022: Ak Bars Bank, Alfa-Bank, Bank DOM.RF, VTB Bank, Gazprombank, Tinkoff Bank, Promsvyazbank, Rosbank, Sberbank, SKB-Bank, Bank SOYUZ, Bank TKB.

The first stage of testing the digital ruble was completed by Russian banks from the pilot group in February 2023. They successfully implemented about 40 different cases, including opening, closing, and transferring funds. The pilot with real digital rubles is scheduled to begin in April 2023.

The Central Bank of Russia announced the creation of a digital ruble in October 2020, which will be the third means of payment in Russia. This digital currency can be issued using digital technologies and will be equivalent to the national currency.

The development of digital payments and equal access to the digital ruble for all economic agents will lead to a decrease in the cost of payment services and money transfers, and increased competition among financial organizations. This will serve as an incentive for innovation in retail payments and other areas, supporting the development of the digital economy.

The Central Bank is considering three ways to implement the digital ruble project: using distributed registers, a centralized register, or a hybrid model. Convenient user interfaces for new electronic wallets should be provided by banks and other financial service providers.

The Bank of Russia has chosen a model where the Bank of Russia opens and maintains wallets for financial institutions, which, in turn, open and maintain wallets for clients. By the end of 2021, it was planned to create a platform where testing of the digital ruble should begin next year.

In April 2021, the Central Bank of the Russian Federation reported on the current stage of the project. A total of 12 banks were identified that will take part in testing ruble blocks in January 2022.

The pilot project with 12 banks was announced in April 2021, with plans to test ruble blocks in January 2022.

The cost of introducing the digital ruble system is a significant one, with Russian banks facing an average cost of ₽100 million. This is according to the head of the Association of Russian Banks, Anatoly Kozlachkov.

The implementation of the project requires significant investments, which is a concern among credit institutions. The main costs are associated with ensuring cybersecurity, upgrading equipment, creating gateways for connecting to the Central Bank system, as well as training employees and adapting software.

One of the banks participating in the pilot project has already invested ₽150 million, while the bulk of the funds is directed to the construction of security infrastructure. This highlights the substantial investment required to ensure the security and continuity of the process.

The costs are especially difficult for banks with base licenses, whose capital in some cases is only ₽300 million. Anatoly Kozlachkov proposed differentiating approaches and taking into account the specifics of each market participant.

Here is a list of the estimated costs associated with introducing the digital ruble system:

+ Ensuring cybersecurity: ₽X

+ Upgrading equipment: ₽X

+ Creating gateways for connecting to the Central Bank system: ₽X

+ Training employees and adapting software: ₽X

The regulation of the digital ruble is a complex process, but the key points are as follows: the law on the digital ruble was signed by President Putin on July 24, 2023, and it amends the Civil Code to allow for settlements with a digital ruble.

The use of the digital ruble is voluntary, according to Elvira Nabiullina, the head of the Central Bank, who noted that "no one is going to force anyone into a digital ruble." However, the regulator expects that the digital ruble will be more convenient and cheaper for citizens and businesses.

The Bank of Russia plans to test the digital ruble on government payments, starting with the opening of digital wallets, their replenishment, transfers between citizens, payment for goods and services, and other transactions. The Central Bank has already approved the rules of the digital ruble platform, which includes the basic rules for interacting with participants and users, as well as the requirements for them.

Here's a summary of the types of digital wallets and accounts:

The Central Bank will be able to independently close wallets for some reasons, such as fraud or bankruptcy, and users will be able to close their accounts by contacting the Central Bank.

In 2016, Russia started discussing the idea of introducing a national cryptocurrency.

The idea was being discussed with interested parties, including representatives of banks, at meetings in the Ministry of Finance and the Central Bank of the Russian Federation.

There was no bill yet, but the department suggested that the activity would be licensed.

Companies and citizens would be able to exchange rubles or other currency for cryptocurrency in so-called exchangers - on special electronic platforms.

The identity of the cryptocurrency acquiring would be necessarily identified to minimize anonymous transfers.

It was assumed that simultaneously with the introduction of domestic regulated cryptocurrency, other cryptocurrencies would be prohibited from circulating in the country.

The Russian government has made significant strides in regulating digital currency and the digital ruble. On June 20, 2023, the State Duma approved a bill recognizing digital currency as an object of agreement, property, and inheritance. This was followed by the adoption of a law on the implementation of the digital ruble on July 11, 2023, which was signed by the President of Russia on July 24, 2023.

The law amends the Civil Code and allows for settlements with a digital ruble in accordance with the legislation on the national payment system. Digital rubles will be considered non-cash funds and can be bequeathed, with heirs able to receive them urgently to cover funeral costs.

The use of the digital ruble is voluntary, as stated by Elvira Nabiullina, the head of the Central Bank. "They want - use, want - do not use. No one is going to force anyone into a digital ruble", she said.

The digital ruble is expected to be more convenient and cheaper for both citizens and businesses, with the Central Bank planning to test it on government payments. However, some experts, such as Alexander Demin, the head of the State Duma Committee on Small and Medium Entrepreneurship, have raised concerns about the potential complications for businesses in remote regions with inadequate infrastructure.

Here are the key dates related to the regulation of the digital ruble: