Central Bank of Russian Testing CBDC In Extensive Pilot Project With Local Banks

Central bank digital currencies—otherwise known as CBDC—continue making headlines around the world. Now, another major country in moving the ball forward as The Central Bank of Russian Federation (CBR) is ready to start a pilot project for its digital ruble, a digital version of its national legal tender, according to TASS news agency.

According to the February 17 report, the nation’s first CBDC pilot program will start on April 1 and will see the participation of 13 local banks and various merchants. The official said that the tests will involve real operations of the digital ruble with real consumers, but will be limited to a certain number of transactions and clients from Russia.

We plan to launch the digital ruble project on April 1 with transactions between individuals and payments in commercial and service companies at the beginning, at this stage. The pilot will carry out real transactions, with real customers, but for a limited number of transactions and for customers with 13 banks that have already technically confirmed their availability.

Olga Skorobogatova, First Deputy Chairman of the Central Bank

The First Deputy Chariman clarified that the general public will not be able to participate in the pilot in the first stage, since only a group of users who have already been selected will participate. After the first pilot stage, the Bank of Russia plans to determine how to further scale the digital ruble, she added.

The announcement comes in line with the ambitions of the Russian government, which previously indicated plans to start testing the digital ruble starting this year. The CBR has been exploring a CBDC for at least two years and had already reported in 2021 that it had a dozen banks selected for the first tests.

Last year, the monetary authority of the published a document detailing that a comprehensive implementation of the digital ruble was among its priorities for the period 2023-2025 . It is expected that a wider rollout of the CBDC system among the inhabitants of Russia could happen before the end of 2024.

What Are Central Bank Digital Currencies?

At its core, CBDC are a digital form of central bank money that can be used as a medium of exchange, unit of account, and store of value. It is issued and backed by the central bank, and its value is determined by the monetary policy of the central bank.

CBDCs can be issued in two forms: retail and wholesale. Retail CBDCs are designed for use by the general public, whereas wholesale CBDC are designed for use by financial institutions.

There are different types of CBDCs, and they can be classified into two categories: account-based and token-based. Account-based CBDCs are linked to an individual’s bank account, and transactions are recorded in a centralized ledger maintained by the central bank. Token-based CBDCs, on the other hand, are based on distributed ledger technology (DLT), and transactions are recorded on a decentralized ledger.

The benefits of CBDCs include faster and cheaper transactions, enhanced financial inclusion, and reduced financial intermediation. CBDCs can also help central banks to implement monetary policy more effectively.

However, there are also challenges associated with the implementation of CBDCs, such as the potential impact on financial stability, privacy concerns, and the risk of cyber attacks. Additionally, the design and implementation of CBDCs need to be carefully considered to ensure that they do not undermine the existing financial system.

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