CBDC or Bitcoin. Or both? One thing is for sure, Russia is very interested in alternative payment systems.
Digital ruble
The test phase of the digital ruble is about to end. The Russian CBDC will soon be a means of payment that complements cash and smart cards.
Speaking at a government meeting on economic issues, the Russian president expressed satisfaction with the test phase. The goal now is a larger-scale implementation.
“The digital ruble has proven to be functional and effective. Now we need to move to the next stage, that is, a wider and large-scale implementation of the digital ruble in the economy, in business activities and in the field of finance.”did he declare.
The idea of introducing a national digital currency dates back to 2020. The test phase started on August 1 last year. Its purpose is to facilitate national and, above all, international payments. The idea is to bypass the SWIFT network, from which Russia has been disconnected since the beginning of the war in Ukraine.
“This is essentially another form of our national currency. What is special is that citizens and businesses can use the digital ruble regardless of which bank they have an account with.”Mr. Putin stressed.
It will nevertheless be difficult to seduce the masses. For two reasons. The first is that it will not be possible to borrow in digital ruble. Second, it will not be possible to collect interest on deposits.
It is therefore difficult to see why Russian citizens would want to keep their money in CBDC. Its only advantage would be to be able to easily make payments abroad. But here again, the possibilities are for the moment almost non-existent.
One ruble for international?
Tests have already been conducted with a number of foreign partners, Russian Central Bank Deputy Chair Olga Skorobogatova told the agency. TASS at the beginning of the month.
Central Bank Governor Elvira Nabiullina suggested in April that full adoption of the digital ruble for mass use could take 5-7 years.
“It will be a natural process, because the choice of citizens and businesses is fundamental: it must suit them”she told the RIA Novosti news agency.
China also appears to be about to complete five years of testing the eCNY. Indeed, the wording ” pilot » has just disappeared from the apps.
And while only 34,000 transfers and payments were made in digital ruble, eCNY facilitated 950 million transactions in 2023. However, this is still a drop in the ocean compared to the 542 billion transactions made through traditional payment systems (0.0017%).
It remains to be seen whether CBDCs will offer favorable conversion rates. The fact that we have no information on this suggests that this is not the case. Only large transaction volumes could change this.
All this raises many questions:
-What technology is used? A blockchain without proof-of-work?
-What is the platform that links with CBDCs of other nations? Mbridge?
-Will BRICS make an announcement at the Kazan summit in October?
What about Bitcoin?
Vladimir Putin has caused a stir among some bitcoiners following his warnings to miners. However, it is a bit too quick to forget that the Russian President protected the bitcoin industry when the Russian central bank tried to ban it in 2021…
In fact, the Tsar logically warned against electricity shortages:
“Uncontrolled consumption of electricity aimed at producing cryptocurrencies could cause power shortages in some regions. We can already observe this in the regions of Irkutsk, near Lake Baikal.”
Russia is indeed a mining heavyweight. Analyst Jaran Mellerud estimates that 40% of the hashrate comes from the United States, 15% from China and 12% from Russia.
The Russian President revealed that ” next to 1.5% of total electricity consumption » is used by bitcoin miners. That is approximately 17.6 TWh. Which gives us 12% of the 146 TWh consumed by the bitcoin network.
By the way, a bill to regulate the bitcoin industry will be considered in the Duma on July 25. Miners will probably have to report the size of their installations and comply with limitations aimed at avoiding blackouts.
There is another part of the law that may not please, however. Only international payments in bitcoin are to be allowed. The law plans to ban payments on Russian territory.
Why so much fear? Bitcoin is not competitive with Mastercard, Mir or Visa anyway. Conversion and transaction fees are too high. Bitcoin transaction volumes can only be marginal for small everyday payments.
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