It seeks to transact outside of commercial banks and avoid Western sanctions. The digital ruble would be operational in 2025.
In the midst of the ruble crisis, which has been falling against the dollar to its lowest level in 16 months, Russia today launched the testing phase of a digital version of its currency based on blockchain technology: one way, Moscow hopes, to esce sanctionswhile at the same time strengthening control over its citizens.
The tests on the digital ruble announced in recent days by the Central Bank of Russia have started as planned. VTB was the first bank to successfully carry out digital ruble transactions on its mobile plication, the bank reported.
The first test phase of real operations with digital rubles began on Tuesday with the participation of 13 banks, recalls Tass, adding that the introduction of digital rubles should start in 2025.
The introduction of a digital ruble has been under consideration in Russia for several years, but the loss of access to part of the global financial banking system due to Western sanctions has led Moscow to speed up the pace
Moscow wants to make its financial system be more airtightless subject to market fluctuations, while limiting the impact of international restrictions.
Russia becomes the 21st country in the world to enter the experimental phase to launch a digital currency, according to the Atlantic Council think tank.
The authorities will be able to “go through blockchain (technology that allows direct transactions from an immutable and shared ledger), which is much more difficult to sanction and attack,” explains Mikkel Morch, founder of Ark36, an investment fund specializing in digital finance and cryptocurrencies.
Thus, the digital ruble, which will be issued by the Central Bank of Russia (BCR) and stored in electronic wallets, “It will strengthen the ability to evade sanctionssince you will no longer need to go through commercial banks”.
However, according to Moch, there is another side to the coin: the digital ruble will allow “full control of the currency, and if the government wants to impose a fine on a citizen, if they want to freeze their assets, now they can do it with one click.” .
ruble falls, rates rise
This pilot test arises when the Russian currency is devalued. The ruble’s weakening proached an exchange rate of 100 to the US dollar this week, marking a drop of about 25% since the beginning of the year.
One of the reasons that Russian exports are falling — as reflected in falling revenues from the sale of oil and natural gas — and imports are increasing. When importing, people or companies must exchange rubles for dollars or euros. That tends to lower the ruble exchange rate.
The Central Bank decided to increase the rate to combat inflation. A weakened ruble exacerbates inflation by making imports in Russian currency more expensive. And the weakness of the ruble is increasingly being transmitted to the prices that people pay.
Inflation reached 7.4% in the last three monthsand the central bank’s target is 4%.
The increase in interest rates makes credit more expensive, and this should limit domestic demand for goods, including imported ones. So the central bank tries to cool the economy to lower inflation.
It raised its benchmark interest rate from 8.5% to 12% at an emergency meeting on Tuesday after a Kremlin economic adviser deplored the ruble’s slide.