Digital ruble: why is it needed and what is the difference from non-cash and cryptocurrency?

What is the digital ruble?

According to the Central Bank's report, the digital ruble is an additional form of the Russian

national currency, which will be issued by the Bank of Russia in digital form. The digital ruble combines the properties of cash and non-cash rubles.

Like non-cash money, the digital ruble makespossible remote payments and online settlements. On the other hand, like cash, the digital ruble can be used offline - if there is no Internet access.

The digital ruble will become available to all economic entities - citizens, businesses, financial market participants, and the state.

Similar to cash and non-cash rubles, the digital ruble will perform all three functions of money:

  • means of payment,
  • the measure of value,
  • A store of value. 

All three forms of the Russian ruble will be absolutely equal: as now 1 ruble in cash is equivalent to 1 non-cash ruble, so 1 digital ruble will be equivalent to each of them.

Why is the digital ruble needed?

The digital ruble will be able to make payments yetfaster, easier and safer. The development of digital payments and equal access to the digital ruble for all economic agents will lead to a reduction in the cost of payment services, money transfers and increased competition among financial organizations.

This will stimulate innovation both in the fieldretail payments, and in other areas and will support the development of the digital economy. And reducing the dependence of users on individual providers will increase the stability of the country's financial system.

What is the difference with bank transfer?

It is important that it is not planned to release a newan alternative currency to the ruble, but simply entering another form of the ruble. We are waiting for cash, non-cash and digital money, equivalent to each other and circulating in parallel.

Thus, the differences will be technological andlegal, but they will not matter much to ordinary citizens. The Central Bank report indicates that in the foreseeable future we will be able to make digital payments in the absence of the Internet and mobile communications. Yes, it's convenient. But, most likely, in the end, citizens will not even see the difference between non-cash and digital money.

If the ideas of the Central Bank remain unchanged, then after the introduction of digital currency, we will lose such a property as the depersonalization of money.

It is now impossible to track a specific ruble(if you do not take into account criminal stories, when the banknote numbers are rewritten by law enforcement agencies). Money is mixed with each other in our account or in our wallet, we cannot track how long ago and from whom we received a particular coin.

The digital ruble is a unique digital code.The central bank indicated in a report that transactions would not be anonymous. Thus, it will be possible to identify each user and each digital ruble, which means total transparency. It will be possible to track the "journey" of a particular digital coin between individuals.

These conclusions about the digital ruble can be drawn from the report of the Central Bank, they categorically do not apply to other digital currencies, many of which are loved because of their anonymity.

How is the digital ruble different from bitcoin?

When the Central Bank only announced plans for digitalizationruble, the concept immediately began to be compared with cryptocurrency. On the digital platform, both blockchain and centralized technologies will be used for issuance, and this really makes the future ruble akin to crypto.

But there is a difference, the first is emission:the digital ruble will be issued only by the Bank of Russia, no decentralized mining. Second, the digital ruble will be an obligation of the Central Bank and a universal means of payment that can be exchanged for cash or non-cash rubles one to one.

This means that the rights to a new form of moneythe law will enforce just like any other. Unlike the rights to the same bitcoins and other cryptocurrencies, which in Russia now do not fall into the legal field.

How can digital ruble transactions be arranged?

For citizens, transactions with digital rubles can besimilar to using e-wallets, payment or mobile applications. Transactions with the digital ruble will be carried out both online and offline.

For offline operations, without access to networkscommunication, users will be able to pre-reserve a certain amount of digital rubles in their electronic wallet, just as they now take cash with them when they go to places where payment cards may not be accepted. And in the online mode, transactions can be performed similarly to non-cash payments.

Foreign experience

The Center for Economic Policy Research (CEPR) called Facebook's attempt to create its own cryptocurrency, Libra, a turning point in the attitude of the world's central banks to digital currency.

In it, taking into account the social network’s two billion audience, the market saw the opportunity for the emergence of a new global currency. The attempt ultimately did not go according to the company’s plan - Libra remains in development for now.

But she became a catalyst for digital reform,said the head of the Central Bank of Sweden, Stefan Ingves. Monetary authorities are interested in maintaining control over the payment system, as well as over the financial sector in a broader sense, and to protect the attractiveness of the national currency.

By the beginning of 2020, according to a Bank for International Settlements (BIS) survey of 66 central banks, about 80% of regulators were working on digital currencies in one way or another.

At the same time, 40% switched from conceptualresearch to experimentation. According to the World Bank as of April 2020, about 20% of these same 66 central banks were considering introducing a digital currency in the next six years.

And by the middle of this year, 36 central bankspublished their analytical studies on digital currencies, and in the fall the Bank of Russia joined them. Three countries have completed testing of the digital currency (Uruguay, Ukraine, Ecuador), and six more are already implementing pilot projects.

In China, work on the project was launched back in2014, and in 2020, the authorities began public testing of the currency, dubbed DCEP, in several cities. China plans to fully start using DCEP as early as the 2022 Olympic Games in Beijing.

How secure is the digital ruble?

The main thing that confuses many in digital currencies issecurity issue. Indeed, the regulator will need to invest a large enough amount to make the digital platform for issuing and managing the new form of the ruble stable and secure, explains Denis Burlakov, CEO of fintech company RBK.money.

It is difficult to give exact figures now, but, for example, Sberbank recently estimated them at 20-25 billion rubles.

Note that the potential risks are indeedenough: possible vulnerabilities of wallets and cryptographic algorithms, hacker attacks on the infrastructure, system failure due to high load. Banks and payment services face such risks literally every day and work with them successfully.

When will the digital ruble appear?

The Bank of Russia has not yet decided to issuedigital ruble. The Digital Ruble advisory report presents possible options and ways to implement such a solution, as well as the necessary functional requirements. Considering that the introduction of the digital ruble will become a significant event for the economy and society.

The Bank of Russia considers it fundamentally important to discusskey aspects, benefits, possible risks, stages and timing of this project with the financial sector, the expert community, as well as with all stakeholders.

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