Five main questions about the digital ruble: O2 Consulting’s answers

In the recent report called "Digital Ruble", the Central Bank invites interested people to discuss the following financial paradigm: the Russian ruble begins to exist in three forms – cash, non-cash and digital. And if the first two forms are traditional for the financial system, the last digital  one is an innovation proposed by the Russian regulator.

Today, in collaboration with O2 Consulting's Partner Daria Nosova and lawyer Natalie Leontieva, we will understand the essence of the digital ruble and the prerequisites for its appearance on the example of the most popular questions that arise after reading a report or news reports.

1. What is a digital ruble?

The digital ruble is another form of the ruble that we are familiar with. It is assumed that the national digital currency will perform all the functions of money and, along with cash and non-cash funds, will be a legal means of payment in the Russian Federation. The digital ruble will be available to all subjects (citizens, legal entities, public entities) and will be able to freely exchange for the usual forms of the ruble at the exchange rate: 1 digital ruble equals to 1 ruble in cash or 1 non-cash ruble (see pages 6, 37 of the report). The central Bank assumes that the digital currency will combine the advantages of cash and non-cash funds.

2. Is the digital ruble non-cash money?

Despite the general intangible nature, it is not necessary to equate the digital ruble with non-cash funds. The Central Bank does not put an equal sign between them either. Thus, the regulator indicates that the digital ruble exists in the form of a digital code, and non-cash money-in the form of a digital record in the database of commercial banks. It is commercial banks that open accounts for storing non-cash funds, while the digital ruble is issued directly by the national regulator (see page 7 of the report). If commercial banks will have any role in the circulation of the digital ruble, it will be exclusively intermediary (see pages 27-32 of the report).

3. Is the digital ruble a cryptocurrency?

No, these are different entities. The digital ruble is distinguished from the cryptocurrency by two important characteristics. First, the digital ruble will have one issuer. The monopoly on the issue of digital currency, by analogy with the monopoly on the issue of cash, will belong to the Central Bank (see page 5 of the report). Cryptocurrency, in turn, does not have a single issuer, which is its key characteristic. Secondly, the cryptocurrency is not recognized as a legal means of payment, the digital ruble, on the contrary, will acquire such a status.

4. Why did the Central Bank need to introduce a digital ruble?

One of the possible reasons for the regulator's interest in the national digital currency is the economic crisis, which traditionally requires central banks to stimulate the economy, for example, by lowering the key interest rate. The influence of the Central Bank on economic processes may significantly increase after the introduction of the digital ruble and a decrease in the amount of cash in circulation. As for non-cash money, their gradual replacement with digital currency will reduce the role of commercial banks in the economy and further strengthen the role of the Central Bank as the sole issuer of a new digital entity. Finally, the digital ruble will provide the regulator with a number of other advantages. For example, through digital codes, it is planned to strengthen control over the use of budget funds and funds allocated under government contracts (see page 16 of the report).

5. What is the future of traditional forms of money – cash and non-cash?

We are not talking about a complete rejection of cash and classic non-cash funds yet, such a discourse today will only exacerbate the already tense social and economic situation. The Central Bank has repeatedly stressed that the three forms of the national currency will coexist. However, one should not think that the Russian regulator points out the numerous "advantages" of the digital ruble for no reason.

Read more on the website vc.ru .