The Digital Ruble Will Help Regulate Interest in Cryptocurrencies in Russia

The deadline is approaching when the digital ruble will "go to the people." According to the Central Bank, most Russian banks are ready for the implementation of the digital ruble starting September 1, but preliminary work is still underway.

The very concept of the third form of the Russian currency continues to spark debate — why is it needed if there is cash and non-cash money?

In my view, among the many arguments for and against, there is another important point: it is precisely now that the authorities are seeking to establish a final status quo for cryptocurrencies. And the digital ruble could play a significant positive role in this.

The current focus is on so-called stablecoins — cryptocurrencies whose value is pegged to fiat money. It is known that such financial instruments may be used in Russia's foreign trade settlements. The Ministry of Finance recently stated that access to stablecoins from friendly jurisdictions is possible if needed.

At the same time, signals are coming that fees and additional barriers may be imposed on the circulation of such financial instruments from unfriendly countries — in particular, this could affect dollar-denominated stablecoins (USDT, USDC, etc.).

The logic here is clear: such assets exist in Russia's foreign trade, but they carry risks of blocking due to sanctions. However, simply "squeezing" them out of the sight of Russian investors, exporters, and importers through regulation is not easy: there is a risk that such instruments will simply go into a gray zone.

This means that alongside building regulation, it is necessary to develop competitive alternatives to dollar stablecoins.

Private ruble stablecoins are gaining momentum in foreign economic activity, but I also see potential for the Central Bank's digital ruble in foreign trade. And this last point contains one of the strongest arguments for why the third form of the Russian currency should be developed.

Why is this the case? If we look at the domestic circuit, the forthcoming launch of the digital ruble is running parallel to growing interest among individuals in cash, as the Central Bank reports.

Much has been said about the reasons for this, but I would draw attention to the concept of convenience. Traditional cash certainly wins if banking digital services suddenly fail.

The digital ruble, if it works seamlessly, could begin to play the role of digital cash — but for this, settlements with it must be as accessible as possible at any time, even when there is no internet (for example, through SMS services). If this does not work out, interest in traditional cash will increase.

This point strongly overlaps with what is happening in Russia's foreign trade. Dollar stablecoins from unfriendly jurisdictions are popular in export-import operations because of their convenience. Alternatives must be no less comfortable and must not compromise on security.

I am convinced that the authority and capabilities of the Central Bank, together with the Russian banking sector, can turn the digital ruble into a strong move in the competitive game against USDT and other similar stablecoins. Why is this important?

The effectiveness of the third form of Russian money in export and import settlements equals the growth of its balances in the accounts of exporters and importers — and these are not only legal entities but also individuals. This means that a habit of holding funds in digital rubles will emerge — a good story that will scale from the external circuit to the domestic market, displacing excessive interest in paper money and coins.

It is known that there are countries in the world at various stages of deploying their digital currencies. However, no state has yet brought such an asset to the same level in its foreign trade as non-cash settlements.

Nevertheless, the argument "why should Russia do this if no one else has done it yet?" looks untenable. There are always those who do something first and, as often happens, face a wave of criticism.

But now I see that the digital ruble, if effectively deployed, can solve several problems at once that are important for the country's finances and economy.

First, in export-import operations, it allows for a transition to settlements in a form of the ruble that cannot be blocked by any unfriendly instructions or actions of other states. This is not non-cash money, which is tied to banking infrastructure.

Second, the digital ruble will reduce interest in traditional cash, which will improve the efficiency of both the revenue and expenditure sides of the Russian budget.

Third, Russia's partners in the EAEU and BRICS+ are waiting for Moscow to provide a mechanism for settlements in rubles that would be effective and resilient to all sorts of non-market attempts to hinder it. The emergence of such an instrument is the key not only to a large volume of trade within the blocs. For Russia, the digital ruble is a window for attracting foreign investment — both into OFZ bonds and the stock market. Essentially, this is about the emergence of a business environment of fundamentally new digital quality and the development of an entire ecosystem of services.

Fourth, the digital ruble is a path to domestic benchmarks for all Russian export goods. First settlements, then balances in accounts, then the emergence of a habit of dealing with such a digital currency. The next step is determining external prices for Russian goods through Russian digital money — which would allow avoiding the huge losses that exporters and the budget currently incur from having to rely on dollar benchmarks, even in deals where settlements are not conducted in US dollars.

All of this is important, as it must be said honestly: foreign dollar stablecoins represent the soft digital power of the United States, even if the issuers of such assets are formally registered outside the States. Through such instruments, liquidity is attracted from global trade and finance, which supports demand for dollar assets.

But there is a fragmentation in this US policy, as the Federal Reserve, due to the peculiarities of the American political system, is delaying the launch of the digital dollar. This is a mistake that others will inevitably capitalize on while Washington remains unaware of it.

Russia has an opportunity to use this moment to launch the digital ruble into global finance and thereby gain growth in demand for ruble assets. Yes, this will lead to further strengthening of the Russian currency — but the negative aspects for exporters will be more than compensated for by the inflow of foreign capital through the "digital," which will reduce the cost of borrowing.

And finally, it is necessary to regulate the cryptocurrency market, but in the digital environment, it is equally important to have working alternatives to USDT and other dollar stablecoins. The digital ruble can shift interest from cryptocurrencies to itself, given the potential it holds — and this potential must be unlocked in the interests of Russia's economy and finance.