The active digitalization of large domestic financial institutions is, of course, a positive trend. Russia is one of the five leading countries in the world that are rapidly switching to non-cash payments, and the number of contactless transfers and payments is increasing every year. Such active development requires amendments to the legislation, and in particular, many specialists and representatives of the financial sector turn to the issue of cryptocurrencies and their place in the modern financial world.
In this context, the policy of the Bank of Russia is mainly aimed at removing the stigma of rhetoric around cryptocurrencies. The National Central Bank does not consider it appropriate to define cryptocurrency as property at the level of civil law, but rather allows it as property under certain laws, including the Anti-Corruption Law.
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Cryptocurrency is known to be a tool for money laundering and negatively affects the stability of financial systems. According to the central bank, there are reasons to strengthen oversight of financial transactions and increase transparency, and most importantly, it is a driving force for developing an alternative such as the digital ruble. It will be a digital currency that has been successfully implemented in many regions of China by the People’s Bank of China, and many other countries are in the testing phase.
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What changes will the digital ruble bring?
First, it will increase the availability and lower the cost of payment services. This worries many banks as it can lead to customer churn. There are concerns that practical e-wallets, which are cheaper than the central bank, may be more suitable for the applications they currently use.
Cryptocurrency, unlike the digital ruble, does not meet the interests of money managers and the tax system and does not require a link to a central person. However, the payment system in Russia has already been developed: instant transfers are available to users along with QR codes, contactless payments and convenient interfaces for banking applications. So the attractiveness of switching to the digital ruble for consumers is far from clear. Banking institutions are not interested in public access to information about customer accounts and transactions. The use of the digital ruble would mean that the central bank is the sole owner of the database.
The digital ruble can also be classified as a separate type of money that has the advantages of digital currency (electronic currency) and paper money, which have individually defined functions similar to the series and number of banknotes. Proponents argue that this will ultimately lead to the complete elimination of the shadow economy and the impossibility of money laundering, since every step of the digital currency transaction can be easily tracked.
What mechanisms for the technical implementation of the digital ruble does the Central Bank of Russia offer? He considers three options: decentralized distributed records, a centralized database, and a hybrid alternative that involves a combination of the former and the latter.
The use of distributed items and mixed variants could provide a higher level of transaction security, which proponents of the digital ruble have declared an advantage. The disadvantages of these alternatives are the relatively low productivity compared to the second alternative, and the lack of generally accepted application of accounting and other reporting standards.
The center recording option wins in the ability to handle high loads, but loses out due to weakness. This also means that all user data is stored in one place and access to it is completely under the control of the central bank. This storage system is currently used by most commercial banking institutions and the central bank does not offer them any advantages. Hacking a database with centralized storage is easier than accessing the keys of a blockchain-based system. Thus, any central database is inherently more vulnerable to cybercriminals.
If the central bank chooses decentralized distributed items and smart contracts during the launch phase, it will affect the speed of transactions, as the central bank notes in its report, but the security will be better.
The Bank of Russia offers four digital currency models. The first concerns the introduction by the central bank of electronic portfolios for other financial institutions for interbank settlements without the participation of individuals and legal entities, although no further development is planned. The second model puts the opening and maintenance of e-wallets under the full control of the central bank, which warns of the danger to the banking sector.