FINANCE, Interviews

Nikita Maslennikov: Russia, businesses and people to win from digital ruble

In July, Russian President Vladimir Putin signed a bill on establishing a legal framework for implementing the digital ruble, into law. Nikita Maslennikov, Director of the Economics and Finance Department at the Institute of Modern Development, spoke to Invest Foresight about the reasons for this legal initiative and how soon the digital currency will become available for use.

Nikita Maslennikov, Director of the Economics and Finance Department at the Institute of Modern Development

— Do national digital currencies fall under the category of if you can’t win it, lead it – or are they something really useful and important?

— Generally speaking, the digital ruble is a certain historical stage of the development of the monetary system. The thing is that money, like everything in the world, is evolving. In addition, this is a natural development of financial technology, one the one hand, and on the other hand, the digital ruble comes as a response to cryptocurrencies.

Because, sure, it would have been possible to try to regulate them. But what we see is that most central banks are either testing digital currencies or already building them. There are about 90 such banks in the world, and some countries, such as Nigeria, the Bahamas and China, are already testing the digital currencies at the level of national economies. Scandinavia and Japan are also ready to launch their digital currencies. This year, the European Commission adopted a memorandum on creating the digital euro, and a relevant working group has been formed within the US Federal Reserve System. Even though it does not show any public activity, it is still working on the digital dollar.

We could not be left behind this global trend; it is a certain new historic stage of the development of the monetary system, which Russia is bound to join.

— So, it seems that Russia, being in some way or another part of the global finance system, needs the digital ruble to not fall behind everyone else…

— First, yes, to keep up with the others. Second, when the digital currencies come into circulation, it will lead to a significant simplification of the system payments and settlements, first of all, international ones. Loosely speaking, it is a natural and logical alternative to SWIFT, because as compared to digital currencies, SWIFT looks like an obsolete teletype.

— This means businesses need the digital ruble, right?

— Of course, and all those who are engaged in international settlements. Trade settlement in national currencies often entails high costs. To eliminate them, you need a digital analog of currency. It is important that it was synchronized with partners.

China has the digital yuan, we will have the digital ruble, so will be there a digital rupee and when? Will South Africa develop the digital rand or Brazil the digital real? The rand is already being tested by banks. Singapore and Malaysia will also join the process; they are also moving towards the digital settlement system.

— I understand about businesses, but why does the population need the digital ruble?

— Well, first of all, the digital ruble and its use will eliminate fees for merchant acquiring services, and this already is a big advantage. The ruble will be issued solely by the Central Bank, and acquiring is the bank’s responsibility.

At the same time, it is the same payment system as others and includes both cash and cashless settlements. But there is a security issue, of course.

— Is the person who currently pays using their card or smartphone in danger?

— They can often attract scammers. With the digital ruble, there are responsibilities of the Central Bank: if you have something stolen from you, the state will have to either return what was stolen or take all the necessary measures to prevent such theft. Yes, nobody really speaks about it, but overall, it is logical.

The digital ruble will first be tested at the level of individuals and then businesses, and the prospects here are very interesting.

The budget money becomes marked, that is, one can instantly see its intended use, which means an increased control over state expenditures. This process, like counteracting corruption, will reach a whole new level. It would be almost impossible to pay kickbacks with the digital ruble.

— According to Deputy Speaker of the Federation Council Nikolai Zhuravlyov, Russia spent only two years, or three times less than China, on its pilot digital currency project. Are you concerned that fast means low quality and the project will have to be redone?

— I should give the Central Bank credit and note that it is not rushing: the testing phase is scheduled for 2023 and will essentially continue through 2024. I believe people will be able to actually start using digital currencies in 2025. Eighteen months for testing seems quite reasonable.

— The State Duma claims that the digital ruble may complicate business operations in several Russian regions, especially in remote territories. On the one hand, digital currencies solve issues related to acquiring but, on the other hand, digitalizing businesses to help them adopt the digital ruble will make whatever services they offer more expensive. Have businesses been put in an unfair position?  

— This is difficult to assess at this stage; we need to look at what happens during the testing phase and assess the experience. The first trial runs will involve transactions between individuals, possibly self-employed workers, who are also individuals. Bigger businesses will join the system later, but we’ll need to see how it goes.

The most important part at this stage is that a legal framework is now available for the pilot transactions. Thirteen banks have been selected to participate in the experiment; ten more applications are being considered, and another ten said they will consider joining once they see how things go, but they are actually ready to join the process.

Apparently, banks are interested. True, they have certain fears that this would divert liquidity from the market. It is a real possibility, but its potential negative impact will be compensated by other payments. So far, the project looks like a net positive for retail chains and banks.

Although banks do not stand to gain much in the Central Bank’s scenario, their overall profit will still be about RUR 10 bln ($101 mio). And the retailers participating in the experiment (a little over 30 retail chains across 11 regions) will be able to save on bank commissions. According to the Central Bank’s preliminary estimates, they can save up to RUR 80 bln ($813 mio) a year.

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