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The digital ruble will most likely replace other forms of money, but the question is which one: non-cash or cash? On this issue, the Russian Central Bank's policy is mainly focused on de-escalating the discourse around cryptocurrencies. The country's central bank does not consider it appropriate to define cryptocurrencies as property at the civil law level, but allows them to be considered property in terms of certain laws, including anti-corruption laws. The active digitalization of Russia's large domestic financial institutions is a clear and absolutely positive trend. The country is one of the five fastest transitioning to cashless payments in the world, and the number of contactless transfers and payments is increasing every year. Such positive developments require changes in legislation, and inevitably, many experts and representatives of the financial sector turn to the question of cryptocurrencies and their place in the modern financial world.
On this issue, the Central Bank of Russia’s policy is mainly focused on de-escalating the discourse around cryptocurrencies. The country’s central bank does not consider it appropriate to define cryptocurrencies as property at the civil law level, but allows them to be considered property in certain laws, including anti-corruption laws.
Cryptocurrencies have gained notoriety for being a means of criminal money laundering and for their negative impact on the stability of the financial system. The central bank sees a reason to strengthen controls over currency transactions, increase their transparency and, more importantly, an incentive to develop an alternative such as the digital ruble. This would be a digital currency, which the People's Bank of China has already successfully piloted in several regions of China and is also in the testing phase in some other countries.
What changes will the digital ruble bring?
First, it will increase accessibility and reduce the cost of payment services. This is a concern for many banks as it could lead to an exodus of customers. The worry is that the central bank's convenient and cheap e-wallet may be preferred over the apps they currently use.
Cryptocurrencies, unlike the digital ruble, do not serve the interests of monetary regulators and the tax system, and do not involve a central obligor. However, today, Russia's payment system is already quite developed. Instant transfers, QR codes, contactless payments and convenient banking application interfaces are all available to users, so the transition to the digital ruble is not yet obvious to consumers. Banking institutions are not interested in disclosing customer accounts and their transaction information. The implementation of the digital ruble will result in the central bank being the sole owner of the database.
Alternatively, the digital ruble can be defined as an independent currency that has the advantages of both digital money (electronic money) and money, with its unique characteristics, as well as serialization and numbering similar to paper money. Supporters emphasize that in the long run, this will lead to the complete elimination of the shadow economy, and any money laundering will be impossible, since any stage of digital currency transactions can be easily traced.
Technical implementation <br />What technical implementation mechanisms does the Central Bank of Russia offer for the digital ruble? It considers three options: a decentralized distributed register, a centralized database, and a hybrid option involving a combination of the first and second.
The use of distributed registers and hybrid options ensure a higher level of transaction security, which is claimed as an advantage by supporters of the digital ruble. The disadvantages of these options are relatively low performance compared to the second option and the lack of implementation of generally accepted accounting and other reporting standards.
The centralized register solution wins in its ability to handle high loads, but loses due to its fragility. This also means that all user data is stored in one place, and access to the data is completely controlled by the central bank. Most commercial banking institutions currently use such storage systems, which do not bring advantages to the central bank. It is easier for hackers to hack into a centrally stored database than to obtain the keys of a blockchain-based system. Therefore, any centralized database will a priori be more vulnerable to cybercriminals.
The central bank pointed out in the report that if the central bank chooses a decentralized distributed registration solution and smart contracts during the launch phase, transaction speed will be affected, but security will be improved.
The Russian Central Bank has proposed four digital currency models. The first is that the central bank implements electronic wallets to other financial institutions for interbank settlement without the participation of individuals and legal entities. However, as the least promising model, there are currently no plans for further development. The second model puts the opening and maintenance of electronic wallets completely under the control of the central bank, which makes the banking industry wary. Under this model, there is a risk of liquidity outflow. The third and fourth models give financial institutions and banks some intermediary functions, allowing customers to open electronic wallets on familiar platforms and applications under familiar conditions.
Application of digital ruble in social payments <br />The state allocates subsidies to families, hoping that these funds will be used entirely for their children. Today, it is not always possible to track the use of subsidy funds. If these payments are paid in digital rubles and can only be spent in children's stores where children's products are purchased, the problem of improper consumption can be solved. Such payments can be color-coded. "Blue" money is for subsidies, and "red" money is for taxes. Other payments can also be color-coded to prevent their abuse.
Another promising area for digital currencies is international payments. If digital currency mechanisms are used, transactions within a certain group of countries can become much more convenient and faster.
Although digital currency was originally conceived as a replacement for cash payments, it seems more likely to replace traditional non-cash payments. This has become a concern for commercial banks because it affects their commission income.
Therefore, the current discussions, including consultations between central banks and market participants, are not about the introduction of digital currencies in principle (which will almost certainly happen), but about what new services banks can provide to their customers - for example, tracking transfers, some kind of "color coding", writing smart contracts, etc. (Cointelegraph) |
