Russia’s digital ruble progress update, soon to be used for international payments

The First Deputy Governor of the Central Bank of the Russian Federation, Olga Skorobogatova, announced on Thursday that the Central Bank of Russia will accelerate and expand the digital ruble project for international payments.

Olga Skorobogatova stated: "We have received a large number of applications and requests from individuals and businesses through banks who want to use the digital ruble and ask for the project to be expanded to all banks and a large number of participants.

Therefore, since September, we have been moving towards this expansion and connecting more banks." She also emphasized, "Since 2023, the digital ruble testing process has been ongoing, intending to use it for international payments soon." According to reports from Pravda, the new "phase" of the pilot will start on September 1, offering the digital ruble to "real customers with real money."

Progress of the Digital Ruble in Russia

First Phase Pilot of the Digital Ruble

The first phase of the pilot began in August 2023, with VTB Bank being the first Russian bank to conduct transactions.

Currently, 30 companies in 11 cities support receiving digital rubles through VTB.

For example, some Lukoil gas stations accept CBDC for fuel and snacks, users can pay for phone or internet access online via Rostelecom, and CBDC can be used in the Moscow metro.

In early June this year, the Central Bank signed a cooperation agreement with the Mayor of Moscow.

It envisions a broader rollout of CBDC in the future for metro travel, parking, and other transportation services. Additionally, the Mayor stated that the city plans to use smart contracts to automate the insurance of its urban transport vehicles.

Meanwhile, in addition to e-commerce and online transactions, users can also transfer funds between their bank accounts and digital ruble wallets through 14,000 VTB ATMs.

Last year, the bank also conducted cross-border transactions with Belarus, albeit in a test environment.

VTB is one of 13 banks in the first phase trial. The second phase will include Russia's largest bank, Sber, the largest digital bank, Tinkoff, and 15 other banks. It will also expand the number of focus group participants and retail stores, add dynamic QR codes, and allow transfers between companies and other legal entities.

Expansion of the Digital Ruble Pilot in September

A few months ago, the Central Bank stated that it would expand its pilot network to include a "second group of banks." However, the Central Bank refused to set a timetable for this expansion.

Skorobogatova and other senior bank officials previously announced their intention to launch CBDC nationwide by the end of 2025. Skorobogatova added that the Central Bank has received "a large number of applications and requests from citizens and businesses across the country" requesting the use of the digital ruble. She added that there is now a "genuine demand" to "expand the project to all banks and more participants."

Skorobogatova concluded that she "believes" the digital ruble project "will develop very actively in the second half of 2024 and next year."

Slow Progress of the Digital Ruble in Russia

The milestone of 25,000 CBDC transactions in Russia pales in comparison to indicators from other jurisdictions exploring the concept of digital versions of their national currencies.

Digital renminbi transactions in China soared to over 50,000 in the first six months after launch, while digital rupee transactions in India surpassed the 30,000 mark in a similar timeframe to Russia.

However, experts suggest that expanding the number of participants could significantly contribute to the adoption metrics of Russia's CBDC.

Given the plan to introduce a common settlement platform for BRICS member countries, Russia could accelerate its CBDC research to support its ambitions for de-dollarization.

Is the Digital Ruble Really Effective for Russia?

Given the extent of financial sanctions following Russia's full-scale invasion of Ukraine, many Russian banks were removed from the SWIFT system, and trade flows into Russia decreased.

Developing a CBDC could be a reasonable motivation for the Russian government to open alternative channels for cross-border payments.

But even if Russia can test the technical feasibility of cross-border transactions, it does not mean there will be global demand for the digital ruble.

The digital ruble will be subject to the same economic conditions as paper currency, which means a decline in exchange rates is generally bad news.

For a currency used in foreign transactions, it needs to be stable and freely convertible. Additionally, it needs to inspire confidence in governments and large financial institutions.

In cross-border transactions, neither the digital nor paper form of the ruble will replace the US dollar, euro, pound, or yen. In fact, as Russia seeks economic de-dollarization, one possible avenue will be using the renminbi or digital renminbi.

As early as October 2022, Russia became the world's fourth-largest offshore renminbi clearing center, while China participated in the first real cross-border digital currency transaction.

Russia has also used China's broader currency settlement system to trade with other countries, creating a long-term dependency that is hard to resolve.

For now, the digital ruble has little effect on Russia's rapidly developing economic predicament.