Russia may get digital rubles, so in addition to regular wallets and bank accounts consumers will have digital money available in their smartphones. The concept of the new form of the national currency is still under consideration with a detailed report of the Central Bank now displayed for a public review and discussion. According to Artem Genkin, Doctor of Economics, Professor, and President of the Center for Protection of Depositors and Investors autonomous non-profit organization, the chances of the concept to become a legislative statute, given its integrity and consistency, are quite high. Invest Foresight spoke to Mr Genkin of the major challenges the launch of the new monetary instrument may entail, and of the countermeasures to avoid them.
— With launch of digital rubles, what challenges seem to be most substantial?
— In my opinion, a major task is to preserve a seamless payment space. For that, technology-wise, neutrality of digital rubles as compared to cash or cashless rubles is required. That is the only way to avert multiple exchange rates, discrimination of payers reluctant to employ the new means of payment, denial of servicing, as well as any evident or hidden charges. Launching a digital ruble should not therefore result in a fragmentation of a common payment space and emergence of a number of segments exclusively serviced by one of the available means of payment. That is perfectly understood by the authors of the report since the document puts a seamless payment space in Russia and easiness of converting ruble from any form into any other as imperative requirements and declares interchangeability and equivalence of all three forms of ruble.
— If introducing a digital ruble is not seamless, what are the risks?
— Back in the 1990-s, in Russia there was a secondary market of various quasi-money payment instruments such as special discounts, floating prices quoted by suppliers, fictitious dealings — all intended to elude far-fetched restrictions on financial markets. That past experience evidences that any financial substitutes make economy inefficient and vulnerable to corruption. Such a conclusion is made in my 2000 book, Russian Economy and Monetary Surrogates. Some of the present-day oligarchs, for instance, back then were involved with businesses designed to convert e-money into cash.
What are other important considerations pertaining to launching a digital ruble?
— I believe it would be useful to draft a list of statutes which will have to be amended due to implementation of the digital ruble concept. The subject is barely covered by the report of the Central Bank which only spares a single page for it. The provisions of the statutes to be amended should be specified thereafter, and ultimately, their new versions should be drafted. Besides, it is most essential to identify the stakeholders who may potentially be impacted by the said amendments, and hold consultations with the same in advance in order to mitigate and facilitate the approval of the innovations by the legislators.
— Do you think a digital ruble may facilitate implementation of smart contracts?
— Within the framework of the digital ruble concept, introducing smart contracts becomes possible and most worthwhile. I believe, in this regard a digital ruble has no comparable, equally inexpensive, broadly applicable, and — first and foremost — technology-wise relatively simple competitors.
Yet the risks of the digital ruble circulation when public funds are spent under smart contracts, should not be disregarded. True, budget funding in digital rubles allocated for a specific purpose such as procurement of medicines, for example, may not be used to buy an ambulance or anything else- due to technologically embedded restrictions. Still, such functions should be employed with a due care as in case of a neglectful application, the principle of equivalence of all three forms of the national currency will be impaired resulting in digital ruble’s depreciation.
— How is this new payment instrument likely to be accepted by businesses?
— It is essential that digital ruble is not perceived as an encumbrance or, more so, an imposed liability. Much will depend on sorting out the issue of the infrastructure integration costs for retailers and service providers. Such costs may become quite substantial, given that the Central Bank’s report lists a number of requirements to digital ruble, including high speed of transactions performance by retailers and service providers, absolute acceptance, safety and reliability. Besides, the report mentions a possibility of “resorting to digital rubles via various financial intermediaries”. Would that entail a fee? Would such a fee be somehow limited? These questions need to be further elaborated on.
— Will the existing infrastructure suffice?
— According to the report, “customer transactions in digital rubles may be performed by the current infrastructure of banks and points of sale”. That implies solutions for contactless payments, QR codes, and biometric technologies, yet it is not explicitly evident whether it will indeed be an easy move for businesses, with details of an account in digital rubles opened with the Bank of Russia automatically replacing details of an account in regular rubles with a retail bank.
— How can the problem be resolved?
— The problem may be partially resolved through a massive campaign to popularize true advantages of digital rubles and, most importantly, of the cost-effectiveness of the new technology. Here, two options are available. First, systemic PR and GR projects may be launched involving best national experts and SROs. Second, tax benefits, tax deductions, or possibly costs recovery may be offered at the initial stage of the technology implementation.
— What do you think of the offline transactions in digital rubles, mentioned in the report?
— I believe, for С2В and especially for В2В settlements, such an option should be envisaged at the first implementation stage. Major problem points in dealing with digital rubles should be identified in the first instance, potential frauds and risks assessed. It’s best to first learn swimming before diving.
— Will launching digital ruble require any special enlightenment for individuals?
Improving consumer financial literacy and advising of the risks associated with monetary instruments are important at all times. The national regulator’s report rightly outlines the need for that sort of educating. Yet in addition to individuals, training programs for SMS businesses should be envisaged as it is commonplace that employees of companies operating new technologies lack proper qualification, while acceptance of technologies by consumers depends on such employees’ efficiency in the first turn.
— When using digital rubles, consumers may face some incalculable problems. How should dealing with customer complaints be arranged?
— The Bank of Russia’s report mentions supervising and regulating agencies may be authorized to take customer claims and complaints. I believe they should not be the basic tier in reviewing complaints though, but financial intermediaries instead, since it is quite possible there will be a tide of millions of customer complaints, and in such circumstances “customer service within the Bank of Russia” will be unable to operate smoothly.
— If digital rubles are lost through unauthorized transactions, can they be recovered?
— As for digital rubles lost by individuals through unauthorized transactions, I think there should be some bottomline recoverable amount set and increased over time.
By Olga Blinova