As sanctions continue, Russia will start developing the CBDC settlement system in Q1

 

This quarter, the nation's central bank will start looking into two potential cross-border CBDC settlement models.

In the midst of ongoing sanctions imposed in retaliation for its invasion of Ukraine, Russia's central bank is reportedly ready to start creating a cross-border settlement system using a central bank digital currency (CBDC).

According to a Jan. 9 report by local media outlet Kommersant, Russia's central bank will study two potential cross-border settlement models as part of its plans to move forward with the introduction of the digital ruble in the first quarter of 2023.

According to the first suggested model, various nations would enter into unique bilateral agreements with Russia in order to integrate their CBDC systems.

Each agreement would be made to guarantee that the conversion and transfer of assets between the nations complied with its terms.

The second, more complex model suggests creating a single hub-like platform for Russia to communicate with other nations, sharing common protocols and standards to make it easier for connected nations to send money to one another.

The first model, according to Roman Prokhorov, the executive director of the Financial Innovations Association (AFI), was easier to implement but less effective for cross-national interactions.

The alternative was considered to be more "advanced," and he thought a two-way system could be implemented initially, with China being the most likely partner given its "technological and political readiness."

According to reports from September, Russia intends to settle financial transactions with China using its digital ruble by the end of 2023.

Others, however, think politics, not technology, will constrain Russia's CBDC play.

According to Alexey Voylukov, vice president of the Association of Banks of Russia, the introduction of a digital ruble won't alter or improve the political situation in the world for Russia, and trials for the CBDC platform can only be conducted with nations that are friendly toward the Russian government and have the necessary technological infrastructure.

The Bank of Russia previously stated that it intended to introduce the digital ruble by 2024, with all banks and credit institutions linked to the CBDC platform.

Since Russia's full-scale invasion of Ukraine in late February 2022, which escalated the Russo-Ukrainian war, the country has been subject to increasing financial and trade sanctions.

Since then, it has experimented with and thought about ways to get around the sanctions, with the central bank considering using cryptocurrencies in the nation "only to support foreign trade."

A rule allowing Russians to send cross-border payments using cryptocurrency was agreed upon by the Bank of Russia and the Ministry of Finance in September.