cbdc

Foreign trade and pensions: What’s next for Russia’s CBDC project?

The Russian digital ruble pilot launch was delayed until at least May, but the government still hopes to kick off the currency in 2024.

The pilot for Russia’s central bank digital currency (CBDC) pilot should have been launched on April 1, but it was delayed at practically the last moment due to the slow pace of the necessary associated legislation passing through parliament. 

However, with the launch of the pilot still possible in May and the general roll-out of the digital ruble scheduled for 2024, the Russian project remains one of the most important CBDC developments to watch — especially given its possible role in cross-border payments between BRICS countries (Brazil, Russia, India, China and South Africa) and the intent to include it in the massive state-controlled pension system.

A brief timeline of Russia’s CBDC

The first time the Bank of Russia, the country’s central bank, announced its plans to explore the possibility of issuing a digital currency was in 2017. Back then, the bank’s first deputy governor, Olga Skorobogatova, said a CBDC would be a priority for the bank and that it would be looking into it in the near future.

However, at the time, Skorobogatova’s boss — Bank of Russia Governor Elvira Nabiullina — refused to acknowledge it as a “top priority,” instead calling it “a medium-term, or, perhaps, a long-term” prospect.

In 2022, the Bank of Russia revealed it planned to roll out the digital ruble across all banks in the country by 2024. The bank said the implementation would take place in stages and involve extensive testing and infrastructure development. It stated that the digital ruble would coexist with cash and non-cash payment systems, providing consumers more flexibility.

Perhaps the most significant factor in accelerating the CBDC’s development was the need for a reliable tool for foreign trade and settlement following Russia’s invasion of Ukraine and the subsequent sanctions implemented by several countries worldwide.

Magazine: Crypto regulation: Does SEC Chair Gary Gensler have the final say?

By early 2023, local media was reporting that the Bank Of Russia had begun studying two possible cross-border settlement models with the digital ruble.

In February 2023, Skorobogatova publicly announced that the first consumer pilot for the CBDC would take place on April 1, 2023. The experiment would involve 13 local banks and several merchants, as well as real consumers — though it would be limited to the employees of participating companies.

Russian state media subsequently reported that the pilot was delayed pending the passage of specific legislation by the State Duma, the lower chamber of the Russian parliament. The legislation will reportedly come into force no earlier than the beginning of May.

Elena Klyuchareva, senior associate at Russian law firm KKMP, told Cointelegraph that two laws would enable the digital ruble launch. The first is a bill on amendments to the Civil Code, which determines the legal nature of the digital ruble as “a form of non-cash money and contractual relations arising from the use of a digital account.”

The second is a bill on amendments to several laws, the main one being the “Law on National Payment System.” These amendments stipulate the basis for the functioning of the digital ruble platform and the responsibilities of its participants.

Both bills were adopted in the first reading by the State Duma on March 16, 2023. The term for commenting expired on April 14, 2023. “We may expect the continuation of its discussion soon, most likely in May,” Klyuchareva added.

Digitalization and retirees’ anxiety

Governor Nabiullina herself first suggested using the digital ruble in pension payments back in 2021, with few details regarding how it would work.

Discussions around the idea resurfaced at the end of March 2023 as the state-controlled Izvestia newspaper once again teased the CBDC pilot. Several weeks later, Nabiullina had to clarify that the digital ruble wouldn’t be the principal or even the common currency for pension payments but an additional option.

Nabiullina in 2017

The pension system, for which the state is primarily responsible, is a traditionally sensitive area of politics and economics in Russia. With the elderly often being far from tech-savvy, the mention of something “digital” can provoke anxiety. However, Chris Emms, a former business developer at Bitcoin.com who now lives in Russia, said:

“The average Russian pensioner will still be able to spend their money in the exact same way and likely won’t even realize that their money is digital.”

Aleksandr Podobnykh, head of the Saint Petersburg branch of the Association of Chief Information Security Officers, also doesn’t see any potential tension.

He told Cointelegraph that while many citizens, including pensioners, will eventually interact with the digital ruble, the government will probably use some kind of incentivization policy to help people switch to the digital form of money. In fact, digitalization has been a priority for quite some time.

“Today, there are a huge number of initiatives and events aimed at improving the culture of citizens in the field of digital technologies and electronic services. Special attention is also paid to information on investment and security issues in this area,” Podobnykh said.

Will the digital ruble find adoption?

Will the digital ruble significantly affect the use of private cryptocurrencies in the country? All over the world, CBDCs are under development, and the crypto community at large perceives this as governments’ answer to the rise of digital money.

The Russian central bank has been highly hostile to any idea of legalizing crypto and even fought the Ministry of Finance on the matter. Podobnykh has no doubts about the bank’s plans regarding the new currency:

“Undoubtedly, with such an emphasis of the central bank on the monopoly use of the ruble, its position will remain strong. And don’t forget the plans to use it in calculations in the CSTO [Collective Security Treaty Organization] and BRICS countries.”

Emms sees the launch of the CBDC as a type of compromise between the anti-crypto central bank and the Russian politicians in the Duma who are “taking a positive stance over crypto regulation in general.” He believes the central bank hopes Russians will “choose to put their money into CBDC instead of buying high-risk altcoins.”

Recent: Connecting DeFi: How multichain token systems can improve liquidity

Klyuchareva said that the Bank of Russia expects the digital ruble to replace cryptocurrencies within Russia and be more popular as a safer instrument for settlements and investment. “Whether this expectation will come to life remains to be seen,” she concluded.

Speaking to the members of one of the parliamentary parties on April 17, Nabiullina didn’t refute the possibility of using cryptocurrency in foreign trade. Strangely enough, she didn’t specify whether this cryptocurrency would be private or issued by the central bank but mentioned the creation of “special entities responsible for mining.”

That makes the central bank’s stance on the digital ruble and private crypto less transparent — the “experimental” plan to mine some currency and the testing of a national CBDC for cross-border settlements seem to contradict each other. But one thing is certain, in Nabiullina’s words:

“Cryptocurrency shouldn’t be used inside the country.”

Israel’s central bank says CBDC could be issued if stablecoin use increases

The Bank of Israel does not want private companies taking over the digital payments system in the country.

The Bank of Israel says it’s preparing an action plan for the potential issuance of a central bank digital currency, though a formal decision has yet to be made.

On April 17, the Bank of Israel Steering Committee on the Potential Issuance of a Digital Shekel outlined possible scenarios for the development and deployment of a CBDC, a digital shekel called “SHAKED.”

It provided several scenarios that could lead to the issuance of a digital shekel, among them was increased stablecoin activity.

Increased adoption of stablecoins may “impair the payment system,” it noted, before adding that stablecoins not pegged to the shekel “might also harm the monetary transmission.”

“At this point, there are no signs of substantial adoption of stablecoins as means of payment in Israel. However, paying habits of the public might change rapidly, for instance in a scenario of issuance by a major private sector entity.”

Another potential driver of CBDC development is a decline in the use of cash in Israel, the committee said. While cash is still used in a significant portion of consumer transactions in the country, a change in the public’s payment habits may result in a shift away from using central bank fiat, according to the committee.

The Bank of Israel does not want this scenario or private entities controlling payments so a CBDC could be the solution.

It also said that consideration for the issuance of a CBDC would be made to “support competition in the payments system and in the financial system in the digital era.”

If the United States or the European Union issues a CBDC, then this would also influence Israel’s decision to deploy one, it stated.

The Bank of Israel Steering Committee concluded that it was monitoring the situation in preparation for advancing the digital shekel.

Related: CBDC will be used for ‘control,’ ECB president admits in vid chat with fake Zelensky

Israel appears to be shadowing the U.S. in terms of crypto regulation. Earlier this year, the country’s securities regulator proposed legislation that would classify crypto assets as securities in the country.

Industry executives have expressed concern claiming it could “kill the industry.”

Magazine: Unstablecoins: Depegging, bank runs and other risks loom

Bank of England preparing for greater role of tokenization in finance, official says

BoE deputy governor Sir Jon Cunliffe looked at stablecoins, CBDC and other forms of tokenization taking hold in the modern economy in a speech on financial innovation.

Bank of England deputy governor Sir Jon Cunliffe spoke at the Innovative Finance Global Summit in London on April 17 about the development of tokenization. The UK’s central bank is currently exploring tokenization in bank money, non-bank money and central bank money and the ways tokenized assets will interact.

Stablecoins, Cunliffe said, “offer the possibility of greater efficiency and functionality in payments,” but “it is extremely unlikely that any of the current offerings would meet the standards for robustness and uniformity we currently apply both to commercial bank money and to the existing payment systems.” The central bank is planning to collaborate with the Financial Conduct Authority on regulation after the passage of the Financial Services and Markets Bill.

Related: Bank of England has no tech skills to issue CBDC yet: Deputy governor

Tokenized bank deposits are “a much simpler proposition than non-bank stablecoins,” and may allow banks deposits “to compete better with non-bank payment coins.” Regulatory issues, such as deposit insurance and Anti-Money Laundering measures remain, however, as deposit tokens would settle without the involvement of central bank money, unlike current commercial bank settlements.

A UK central bank digital currency “is likely to be needed if current trends in payments and money […] continue.” A digital pound would play an anchoring role in the economy the way cash does now and would provide a wide range of innovators access to a platform. Machinery could be created to ensure that wholesale tokenized transactions could settle in central bank money thanks to a digital pound, again adding to financial stability, Cunliffe said.

Synchronizing tokenized transactions with the British central bank’s real time payment system will also be potentially possible with upgrades that are now underway, Cunliffe said. The United States Federal Reserve has recently announced the creation of FedNow, a new instant payment system.

Magazine: Starbucks joins NFT party, UK government seeks stablecoin regulations and Crypto Twitter rallies behind cancer fighter, Hodler’s Digest: Apr. 3-9

IMF to publish CBDC handbook in response to increasing demand for guidance

The handbook will be descriptive and informational, while the IMF offers advice tailored to specific, prioritized countries.

With interest in central bank digital currencies (CBDCs) at an “unprecedented” level, the International Monetary Fund (IMF) is experiencing heavy demand for guidance in regard to them. In response, the IMF planned to release a CBDC handbook, deputy managing director Bo Li said in a recent speech.

The IMF official saw some urgency in meeting the needs of central banks planning CBDCs. Therefore, the organization has engaged with almost 30 countries that requested assistance in the past two years. Over 40 countries have contacted it so far, Li said, adding:

“We believe CBDC capacity development is essential to avoid a digital divide.”

In addition, poor design of a CBDC could to a variety of risks. To address the informational need, the IMF will produce a CBDC handbook that will be “the basis for capacity development,” Li said.

The future handbook was discussed in greater detail in an IMF staff report. The handbook will “mostly be descriptive rather than prescriptive, offering information, experience, empirical findings, and frameworks to evaluate CBDC.”

The handbook will be completed over the course of four-to-five years, with major funding for it coming from Japan, the report said. It presented a tentative table of contents for the handbook, with 19 chapters divided into broad sections. The tentative contents touch on both policy and technical issues.

Related: Is the IMF shutting the door prematurely on Bitcoin as legal tender?

Meanwhile, as policymakers consider more concrete questions relating to CBDC, the IMF advice has had to become “more tailored to country circumstances and […] more normative and anchored in policy experience and frameworks,” according to the report. The IMF will prioritize assistance for “countries that are systemically important and to countries that are fast-tracking CBDC developments but have relatively high-capacity constraints or weak regulatory standards.”

Magazine: Are CBDCs kryptonite for crypto?

Swedish Riksbank report looks at collaboration with potential e-krona in retail payments

The Swedish central bank’s third report on a potential CBDC raised several issues while focusing on a rather narrow question.

Sweden’s central bank Riksbank has released a report detailing the third phase of its central bank digital currency (CBDC) research. A collaborative model for retail payments and conditional payments is the focus this time.

The Riksbank started its CBDC research in 2020 with collaboration with existing private payment services as an initial priority. It discussed governance as a key question for collaboration and divided options into three levels. The lowest level was a set of guidelines that risked giving participants so much freedom that “it may be difficult for the public to form a common understanding of what an e-krona is.” In addition, it may not develop to serve the entire population.

The other end of the spectrum would be a Riksbank-operated app where “the interface and range of services for the e-krona would […] be standardised and common for all participants.” It noted that setting of those parameters could have a high impact on innovation.

The Riksbank reported on a successful trial conditional payment involving the purchase of a car. While this was a positive sign for the potential e-currency’s programmability, it raised privacy questions due to the extra information that was necessary to complete the complicated transaction. Furthermore:

“If conditions are placed on money, for example that it can only be used for certain purchases or on certain occasions, it risks becoming something more like a gift card and thus no longer money.”

The Riksbank pointed out that the transparency inherent in the system could have implications for bank secrecy and could be useful for uncovering bad behavior on the part of service providers.

Related: Going cashless: Norway’s digital currency project raises privacy questions

While the Riksbank, similar to the United States Federal Reserve and European Central Bank, emphasized that no decision on the issuance of a CBDC has been made, its discussion had a certain sense of urgency. It wrote:

“When cash takes a back seat in favour of digital services from private actors, the Riksbank’s direct role on the payment market is reduced. The Riksbank may thus find it more difficult to fulfil its task of promoting a safe and efficient payment system accessible to all groups in society.”

The e-krona, it suggested, is a potential solution to this problem. The report also touched on the Riksbank’s participation in Project Icebreaker, involving cross-border retail payments and remittances.

Magazine: Sweden: The Death of Money?

Ripple, Montenegro sign deal on project for unspecified national digital currency

The deal, teased in January, could create a national digital currency for a country that now uses the euro.

The Central Bank of Montenegro announced on April 11 that it had signed an agreement with Ripple for the development of a strategy and pilot program for a Montenegrin digital currency in the form of a central bank digital currency, or a stablecoin. The country has used the euro as its currency since its introduction in 2002, despite not being part of the Eurozone.

“More details will be revealed later in the year,” RippleX’s vice president for central bank engagements and CBDCs, James Wallis, told Cointelegraph in a written interview. “The project will go through several stages, including identifying the practical application of a digital currency or national stablecoin.”

Wallis indicated that a sandbox stage is planned to put the future digital currency “Into circulation under controlled conditions. […] We’ll work closely with the Central Bank to determine use cases, key success factors, and timelines.” The project will begin this month, he added.

Related: Montenegro makes Vitalik a citizen, part of plans to promote it as a blockchain hub

Central Bank of Montenegro Governor Radoje Žugić said in a statement that the central bank would work with the government and the academic community to “analyse the advantages and risks that CBDCs or national stablecoins could pose with respect to the availability of electronic means of payment, security, efficiency, compliance with regulations, and most importantly the protection of end users’ rights and privacy.” He added:

“As a central bank committed to following modern national banking trends, the Central Bank of Montenegro is actively ensuring it maintains an efficient financial system.”

Montenegrin Prime Minister Dritan Abazovic first disclosed the upcoming deal between Ripple and the Montenegrin Central Bank in a tweet from the World Economic Forum Davos in January.

Ripple has been touting its expansion in the CBDC space for months. Wallis said the company “has multiple CBDC projects ongoing around the world and is in dialogue with dozens of central banks globally.”

Magazine: China’s 180M digital yuan airdrop, Devastation in Turkey, Laos’ CBDC: Asia Express

Presidential hopefuls RFK Jr. and Ron DeSantis rail against FedNow

The two presidential hopefuls are of the opinion that FedNow is the first step in launching a CBDC that threatens privacy and autonomy.

Presidential hopefuls Robert F. Kennedy Jr. and Ron DeSantis are railing against the Federal Reserve’s FedNow payments system, claiming it would pave the way for a central bank digital currency.

In an April 11 Twitter thread, Democrat RFK Jr. — the nephew of former president John F. Kennedy Jr. — once again sounded the alarm bells over CBDCs, describing them as the “ultimate mechanisms for social surveillance and control” as he questioned the Fed’s claims that FedNow wouldn’t be used to facilitate a CBDC:

“The claim that FedNow is not the first step toward a CBDC would be more easily digestible were we not aware of the Biden administration’s steady barrage of hostile broadsides against cryptocurrencies.”

He added that cryptocurrencies like Bitcoin (BTC) “give the public an escape route from the splatter zone when this bubble invariably bursts” and claimed that Joe Biden’s administration was “colluding with the banksters to keep us all trapped in the bubble of profiteering and control.”

RFK Jr. filed his candidacy documents on April 5 and has been highly critical of CBCDs, stating last week that they “grease the slippery slope to financial slavery and political tyranny.”

FedNow is a 24/7 instant payments system that is slated to launch in July with the aim of speeding up transfers between financial institutions and businesses while also providing a government-backed alternative to similar networks provided by the private sector.

The Fed has played down talk of the system potentially being integrated with a CBDC. On April 8, it addressed a series of frequently asked questions by saying that “no decision” has been made to issue a CBDC and it “would not do so without clear support from Congress and the executive branch, ideally in the form of a specific authorizing law.”

In an April 11 tweet responding to the Fed’s statement, Florida’s Republican Governor DeSantis stated that it is “not merely ‘ideal’ that major changes in policy receive specific authorization from Congress; it is constitutionally required.”

“Unaccountable institutions cannot impose a CBDC on Americans,” DeSantis said. “They will tell us that [a] CBDC won’t be abused but we are wise enough to know better. This wolf comes as a wolf.”

DeSantis is reportedly eyeing a presidential run himself and has also been pushing back against CBDCs. On March 20, he called for a ban on CBDCs in Florida, citing concerns over their potential use for surveillance and control over citizens.

However, some remain unconvinced of these statements.

Related: CBDCs ‘threaten Americans’ core freedoms’ — Cato Institute

Speaking with NBC News on April 7, Aaron Klein, a former United States Treasury official and chief economist at the Senate Banking Committee, argued that the privacy-related concerns held by JFK Jr. and DeSantis are misplaced.

Klein noted that financial institutions are already required to report transaction data under current anti-money laundering and terrorism financing laws, and as such, a CBDC wouldn’t encroach on privacy any further.

“What [DeSantis] is getting wrong is this idea that there’s more reporting if there’s a central bank digital currency than if it’s a commercial bank digital currency,” he said.

Klein also spoke to AFP Fact Check on April 11 and emphasized that FedNow is purely focused on speeding up current Fed payment rails.

“There is no difference in privacy or surveillance whether you are using your Visa card or a CBDC,” Klein said, adding that FedNow and CBDCs have “nothing to do with the other.”

Magazine: Unstablecoins: Depegging, bank runs and other risks loom

White House hopeful RFK Jr. says instant payments may lead to ‘financial slavery’

President John F. Kennedy’s nephew also worries that the government will seize the public’s Bitcoin.

Robert F. Kennedy Jr. filed documents with the United States Federal Election Commission on April 5 to run as a Democratic presidential candidate in 2024, according to multiple news reports. He is expected to officially announce his candidacy on April 19 in Boston, Massachusetts. As reports of his candidacy spread, Kennedy tweeted his position on central bank digital currency (CBDC).

Kennedy, the nephew of former U.S. President John F. Kennedy and son of former U.S. Attorney General Robert F. Kennedy, is an environmental lawyer who gained notoriety as an anti-vaccination activist. By running for the Oval Office, he would challenge current President Joe Biden, also a Democrat.

Also on April 5, Kennedy posted a tweet on the perceived dangers of CBDC. While CBDC is becoming an increasingly political issue in the United States, Kennedy’s statement stood out for its bluntness. There was also some factual confusion.

“The Fed just announced it will introduce its ‘FedNow’ Central Bank Digital Currency (CBDC) in July,” Kennedy began. While the Federal Reserve said it will launch the FedNow instant payment system in July, it will not be a CBDC and is often seen as a competitor to a potential future government-backed CBDC.

The Federal Reserve has repeatedly stated that it would issue a CBDC only with a Congressional mandate.

In line with many opponents of CBDC, Kennedy paints a worst-case scenario of a “CBDC tied to digital ID and social credit score,” disregarding the numerous design options for a privacy-protecting CBDC. The introduction of FedNow “is the first step in banning and seizing bitcoin as the Treasury did with gold 90 years ago today in 1933,” he concluded.

Related: CBDCs ‘threaten Americans’ core freedoms’ — Cato Institute

Kennedy is far from alone in his opposition to CBDC. Many CBDC opponents are on the Right, however. The Republican governor of Florida, Ron DeSantis — whom many expect to enter the 2024 presidential race — stated in a speech that “the central bank digital currency is all about is surveilling Americans and controlling behavior of Americans.” Republican Representative Tom Emmer introduced the CBDC Anti-Surveillance State Act into Congress in February. Senator Ted Cruz has also introduced a bill to block the development of a retail CBDC.

Massachusetts Democratic Senator Elizabeth Warren is running for reelection on a strong anti-cryptocurrency platform. She is possibly the most vocal opponent of cryptocurrency in U.S. Congress but has expressed her support for CBDC. In light of his intention to announce his candidacy in Boston and his family’s strong ties to the state, Kennedy also seems likely to run as a candidate from Massachusetts.

Magazine: Bitcoin in Senegal: Why is this African country using BTC?

Peru considering CBDC to improve payment system: Former IMF adviser

The Central Reserve Bank of Peru has released a report on the development of a central bank digital currency and promises more reports as its research continues.

The Central Reserve Bank of Peru (CRBP) has published a paper that it said will be the first in a series to examine the need, design and timing of a Peruvian central bank digital currency, reported John Kiff, research director at the Sovereign Official Digital Association (SODA). His report concentrates on issues relating to a retail CBDC.

The status quo of competing payments systems in Peru is untenable, the CBRP wrote, but the introduction of a CBDC, combined with new policies to improve the access and interoperability of existing systems, would help the central bank overcome barriers to financial inclusion and lower costs for transactions. According to the report:

“The objective of a CBDC within the framework of the payment system in Peru is to give the unbanked population access to digital payments, so it is important to know their characteristics to prepare an implementation strategy.”

Peru has serious obstacles to overcome. About half the country’s population is unbanked. Three-quarters of the unbanked live in “non-poor” households, but almost 79% of them have no savings. They live mainly in urban areas and almost all of them work informally. Almost all the unbanked have mobile phones.

Related: Developing countries love the Metaverse, rich nations not keen: WEF survey

Nonetheless, the use of digital payments in Peru has increased fivefold since 2015, the report said.

The current report marked the end of the first step out of five steps in the potential production of a CBDC, the report said. No timeline for CBDC development was mentioned. The CBRP also released a 25-question survey of potential users, due April 30.

Peru received technical assistance in the creation of the report from the International Monetary Fund under an agreement reached in May 2021. CBRP President Julio Velarde announced in November 2021 that the country would cooperate with India, Singapore and Hong Kong to develop a CBDC.

SODA is a technology-agnostic firm that provides advisory services on central banking, digital finance and the Web3 industry. Kiff is a former IMF section expert.

Magazine: Are CBDCs kryptonite for crypto?

ANZ bank completes Australian CBDC use case for carbon credit trading

The first Australian dollar-backed stablecoin was used with Australian CBDC support to trade carbon credits with Grollo Carbon Ventures.

Australia and New Zealand Banking Group (ANZ) has completed its use case in the pilot project run by the Reserve Bank of Australia (RBA) and Digital Finance Cooperative Research Centre using central bank digital currency (CBDC). ANZ partnered with Grollo Carbon Ventures (GCV) to trade carbon credits.

ANZ tokenized Australian Carbon Credit Units (ACCUs) and GCV used its A$DC stablecoin to trade carbon credits on a public, permissionless blockchain. Settlement occurred “in near real-time via ANZ smart contracts,” the bank said. Australian CBDC was used to back A$DC. ANZ banking services lead Nigel Dobson said:

“When applied to carbon markets, tokenisation has the potential to improve efficiency and transparency, reduce risk and preserve the unique characteristics of underlying projects to incentivise investment in climate solutions.”

This was the first of three Australian CBDC pilot use cases in which ANZ will participate. It will also be involved in use cases for offline payments and pension fund payments, which are among the 14 use case projects the RBA announced in March. Besides the three projects, ANZ will also be involved in distributing the CBDC.

Related: Putting carbon credits on blockchain won’t solve the problem alone: Davos

A$DC premiered in March 2022 as the first Australian dollar-based stablecoin issued. It was used in June in an ACCU trade between the Victor Smorgon Group and Zerocap.

The second Australian bank-issued stablecoin was the AUDN, issued by National Australia Bank with carbon credit trading specifically in mind. That coin was used in the first-ever cross-border stablecoin transaction in March.

Pro-crypto Australian Senator Andrew Bragg introduced legislation to regulate stablecoin and cryptocurrency services as a private bill (one not introduced by a government minister) in March. He had released a draft of the bill in September. The RBA published a white paper on stablecoins and their regulation in December.

Magazine: Green consumers want supply chain transparency via blockchain