Amid a slump in the value of Russia’s real currency, which has reached its lowest levels since the beginning of the invasion of Ukraine, the country’s Central Bank has officially adopted the digital ruble.
This new state-run cryptocurrency was launched in a pilot phase on August 15. It currently involves only 13 banks and a limited number of customers in 11 Russian cities.
Moscow’s main goal is to use this new digital currency to circumvent Western sanctions. However, some analysts believe it can also be used to increase social control over the population.
The development of the digital ruble has been discussed for years. But the project gained momentum especially after Russia was excluded from the Swift system, a key international financial instrument for dollar transactions, following the aggression against Ukraine.
This move, among the most impactful sanctions, greatly damaged the Russian economy.
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In addition to embargoes on products such as oil and gas, and the termination of trade relations with many Western companies, the exclusion from the Swift system is a significant part of the heavy sanctions imposed on Russia.
These economic attacks have been only partially avoided by Moscow through trade with countries not involved in the sanctions, the use of financial circuits based on currencies other than the dollar, and the adoption of cryptocurrencies.
The introduction of the digital ruble is, in effect, a method through which the state seeks to take control of digital transactions, make the financial system more resistant to sanctions. And, evade the control of restricted banks.
This move is part of a broader geopolitical challenge between countries that support the use of the dollar in international financial transactions and anti-dollar nations that seek currency alternatives..
The digital ruble
Selected users can already create digital wallets, make peer-to-peer transfers, perform automatic payments and QR code purchases. This trial phase, according to the Russian Central Bank’s statement, is expected to be completed by the end of 2023. With 19 more banks joining the system and the platform opening up to cross-border payments.
Currently, Russian authorities assure that the use of the digital ruble will be free until 2025 and completely voluntary.
However, according to some experts, such as Mikkel Morch, founder of the cryptocurrency-focused investment fund Ark36, Moscow could exert strong pressure on the population, especially businesses, to adopt the digital ruble.
Its large-scale adoption could give the government an enormous ability to control the population. Thus becoming an ultimate tool for social control. This is because the government would have immediate and unconditional access to every financial transaction. With the power to authorize or reject them.
This aspect has not been hidden by the Russian regime. But has even been publicized by some political representatives. Anatoly Aksakov, a Russian deputy, explained that the digital ruble would, for example, allow the use of funds loaded onto minors’ digital wallets to be restricted, authorizing only certain types of transactions and blocking others.
In short, the digital ruble could become a powerful tool of social control in the hands of the Russian government.