Russian central bank takes a U-turn on its cryptocurrency stance

Central bank's digital currency, commonly known as CBDC, entails lots of risks for the banking sector and offers many benefits for consumers and businesses, according to the governor of Central Bank of Russia Elvira Nabiullina.

The head of the Russian regulator believes that digital currencies will herald a technical revolution among central banks. Speaking at the congress of "OPORA RUSSIA," a non-governmental organization for small businesses and entrepreneurs, she detailed the regulator's stance on the issue. She explained who will benefit and who will lose from the emergence of a new form of money.

Banks will bear the brunt

The head of the Central Bank of Russia emphasized that the digital ruble will be controlled by the regulator as it is considered as the third form of the existing national currency. She also added that the issuance of the CBDC might hit commercial financial institutions as it will reduce their role in the financial system.

So far, the potential issuance of a digital ruble is a matter of concern mostly for commercial banks as they see it as a threat to their profits, Nabiullina said.

At the end of November, Andrei Kostin, the chairman of VTB, warned that digital ruble would destroy banks' business models. He also believes that the regulator should be careful with the concept as it requires more detailed investigation and research. According to Kostin, digital ruble will transfer a significant part of the traditional banking business to the central bank.

Meanwhile, the Russian Association of Cryptocurrencies and Blockchain (RAKIB) also noted that the central bank's digital currency concept would kill the competitive environment and push the country back to the USSR period.

The fewer intermediaries, the better

The digital currency was envisaged as a tool to reduce people's dependence on banks and cut out intermediaries from financial operations. While banks are not happy about that, the Russian central banker believes that it is a natural process of the financial system development that will benefit retail customers as well as small and medium-sized companies.

We consider this a natural direction of the financial system development: financial intermediaries should become less and less burdensome for the economy and earn money via new products, services, making users' life more comfortable, instead of profiting from its monopoly and lack of alternatives, Nabiullina said.

Faster, better, safer

Besides, Nabiullina believes that digital ruble should be issued and stored exclusively by the central bank. It is the only way to guarantee its security regardless of what happens to the banking system.

She is confident that digital ruble will make settlements and payments more reliable and faster. The regulator considers creating special wallets to pay with digital rubles offline. Thus, companies and people working in remote places without access to the Internet will be able to pay with the new coin.

The central bank makes a U-turn

Meanwhile, in October 2019, speaking at the financial forum, Finopolice, the central bank governor, claimed that Russia would not launch digital ruble as the existing forms of national currency were efficient enough to satisfy citizens' and businesses' needs. A year passed and the regulator changed its position. Now, Russia is among the countries that work on the creation of CBDC.

In the middle of October, CBR launched public consultations regarding the issuance of CBDC. The regulator said that it would accumulate the knowledge and other countries' best experience to avoid mistakes.  

Russia lags behind the trend

While Russia got jammed at the denial stage, other countries made significant progress with the government-backed digital currencies. Thus, China recently announced the second live-testing for its digital yuan in the city of Suzhou. The first experiment took place in Shenzhen at the end of October.

The European central bank is also moving towards the creation of the digital euro. As FXStreet previously reported, the regulator filed a patent for the digital euro trademark and launched public discussions.

Lebanon's central bank plans to launch its digital currency (CBDC) in 2021 to restore public confidence in the banking sector and facilitate the transition to a cashless society.