Russia plans to introduce central bank digital currency for public use next year. This is another step forward toward a completely cashless society and a step backward for financial privacy.
According to a press release from the Bank of Russia, digital rubles will be available to the public by July 1, 2025, and the system will roll out over three years. According to the press release, consumers will make payments with digital rubles using a universal QR code based on the National Payment Card System.
“Major banks will have to give their clients an opportunity to conduct transactions with digital rubles, namely to open digital ruble accounts and deposit cash thereto, make funds transfers, as well as receive digital rubles via the relevant infrastructure. The regulator plans to launch a large-scale use of the digital national currency from that moment on. It is important that the digital ruble is available to both individuals and businesses and that they are able to use it freely, just like other ruble forms (physical money or bank deposits).”
Smaller banks will have additional time to prepare their systems for the shift to CBDC. They have until July 1, 2026, to begin digital ruble services. “Other credit institutions must comply with the requirement by July 1, 2027,” the Bank of Russia statement said.
Trade and service companies (TSCs) with earnings over 30 million rubles must begin accepting digital rubles by July 1, 2025, while businesses earning between 20 and 30 million rubles will have an additional year. All companies will be required to accept digital rubles by 2027.
“Following the large-scale launch of digital rubles, both banks and TSCs will be able to start accepting them as their relevant infrastructure is ready, including ahead of the deadlines proposed in the document.”
Russia isn’t the first country to roll out CBDC.
In the fall of 2023, the European Central Bank (ECB) announced it was laying the groundwork to roll out its version of a CBDC.
According to the ECB’s website, the “preparation phase” for the digital euro kicked off in November 2023 and “builds on the findings from our investigation phase.” The preparation phase is expected to last for two years.
Meanwhile, the Bahamas, Jamaica, and Nigeria experimented with retail CBDCs. Many other countries, including China, India – and the United States.
Based on a BIS survey, “More than half of central banks are conducting concrete experiments or working on a CBDC pilot.”
The New York Fed ran a CBDC pilot program in 2022 with several commercial banks to test the feasibility of a CBDC. This “proof of concept” program tested an “interoperable digital money platform” on a regulated liability network (RLN) for “technical feasibility, legal viability, and business applicability of distributed ledger technology,” according to a press release.
There isn’t a strong political appetite for a CBDC in the U.S., but make no mistake, government people would love to implement one.
What Is Central Bank Digital Currency (CBDC)
The Bank of Russia describes the digital ruble as “a digital form of the national currency that has been designed to expand the options of making payments and funds transfers.”
Digital currencies are virtual banknotes or “coins” held in a digital wallet on a computer or smartphone. The difference between a central bank (government) digital currency and peer-to-peer electronic cash such as Bitcoin is that the value of CBDC is backed and controlled by the government, just like traditional paper fiat currency. In practice, a Federal Reserve-issued CBDC would just be a dollar in another form.
Fiat money benefits governments because they can expand the money supply at will. This enables government borrowing and spending that would be impossible in a sound money system. Without fiat money, governments would be much smaller, less powerful, and less intrusive.
And while fiat systems benefit governments and their cronies, it hurts regular people. As governments print more money to fund their programs and enrich the political class, it steals the purchasing power of everybody else.
The specter of a CBDC creates additional problems relating to financial privacy and the potential for government control.
At the root of the move toward CBDC is what some call “the war on cash.” For years, governments have looked for ways to eliminate physical cash because it is hard to control. I can put it under my mattress, and nobody has to even know I have it. And if you and I do a cash transaction, no record exists. That’s a problem for government officials who would like to tax our transactions or possibly prohibit them altogether.
Enter CBDCs.
Government-issued digital currencies are sold on the promise of providing a safe, convenient, and more secure alternative to physical cash. We’re also told they will help “stop dangerous criminals” who like the intractability of cash. But there is a darker side – the promise of control. CBDC creates the potential for the government to track and even micromanage consumer spending.
Imagine if there was no cash. It would be impossible to hide even the smallest transaction from the government’s eyes. Something as simple as your morning trip to get a coffee wouldn’t be a secret from government officials. As Bloomberg put it in an article published when China launched a digital yuan pilot program in 2020, digital currency “offers China’s authorities a degree of control never possible with physical money.”
The government could even “turn off” an individual’s ability to make purchases. Bloomberg described just how much control a digital currency could give Chinese officials.
“The PBOC has also indicated that it could put limits on the sizes of some transactions or even require an appointment to make large ones. Some observers wonder whether payments could be linked to the emerging social credit system, wherein citizens with exemplary behavior are ‘whitelisted’ for privileges, while those with criminal and other infractions find themselves left out. ‘China’s goal is not to make payments more convenient but to replace cash, so it can keep closer tabs on people than it already does,’ argues Aaron Brown, a crypto investor who writes for Bloomberg Opinion.”
Economist Thorsten Polleit outlined the potential for Big Brother-like government control with the advent of a digital euro in an article published by the Mises Wire. As he put it, “the path to becoming a surveillance state regime will accelerate considerably” if and when a digital currency is issued.
You can see why governments are keen on implementing CBDC as quickly as possible. And you can understand why a lot of people are worried about this potential.