Russia's central bank digital currency (CBDC), the digital ruble, is being positioned as a strategic tool to mitigate the impact of Western sanctions and reduce reliance on the SWIFT international payment system. Initiated in 2020, the project has advanced to real-world testing involving several commercial banks and clients.

The digital ruble aims to integrate seamlessly into everyday transactions, offering enhanced cross-border payment capabilities and reduced transaction costs. However, challenges persist, including public scepticism towards CBDCs, concerns over state surveillance, integration costs for banks, and aligning with international CBDC standards, says Alexandra Prokopenko, a political economy analyst in a paper for Carnegie Endowment for International Peace.

Russia's efforts in developing its CBDC are occurring alongside similar initiatives by other countries, notably China, which has made significant progress in testing its digital yuan and fostering international collaboration. This dynamic may increase Russia's dependence on China. Simultaneously, Russia is encouraging the BRICS group to promote CBDC usage and alternative cross-border payment methods.

While the digital ruble does not pose an immediate threat to the dominance of the US dollar or the effectiveness of existing Western sanctions, it represents a step towards gradual changes in the global financial system. As Alexandra Prokopenko notes, "The potential success of Russia and China in this field... does pave the way for gradual yet significant changes to the global financial system as we know it."

The digital ruble's development reflects Russia's broader strategy to adapt its financial infrastructure in response to geopolitical pressures and economic sanctions. Its future adoption and effectiveness will depend on overcoming current challenges and the evolving landscape of international finance.

The best known money surrogates today include cryptocurrencies and stablecoins. Cryptocurrencies are digital assets where each user keeps a copy of a list of records of all transactions with a given cryptocurrency since its inception. Stablecoins are cryptocurrencies with additional built-in mechanisms to maintain the stability of their value: for example, by depositing fiat collateral at a 1:1 ratio or through issuer transactions similar to currency interventions.

“In reality, stablecoins and cryptocurrencies are not quite money. Money is a social agreement: we accept money in transactions because we expect other people to accept that money from us afterwards. The money we know as fiat money, the currencies that are issued by central banks, currently represent the only money that has universal acceptance in the economy. That is not how cryptocurrencies and stablecoins work. CBDCs, however, are also issued by the central bank, making them a full-fledged form of money,” says Prokopenko.

Russia's real world digital currency

As the Bank of Russia marches toward the nationwide rollout of its digital ruble in 2025, the country is placing itself at the forefront of a global trend transforming how money is issued, circulated and controlled. Central bank digital currencies (CBDCs) have attracted intense interest worldwide – 93% of 86 surveyed central banks are actively exploring them, according to the Bank for International Settlements. Yet in Russia’s case, the motivations extend far beyond convenience.

Since 2020, Moscow has accelerated efforts to digitise its monetary base, culminating in a 2023 pilot with thirteen commercial banks and a retail-focused architecture that grants the central bank sweeping visibility over every transaction. “The digital ruble is designed to be securely stored in specialised wallets directly managed by the Bank of Russia,” the Carnegie Endowment’s Alexandra Prokopenko writes. “This arrangement grants the central bank complete oversight over the issuance and circulation.”

The advantages of a CBDC are numerous on paper: lower transaction costs, stronger control over financial flows and potential breakthroughs in cross-border payment systems. The Russian model opts for a two-tier architecture, with users accessing the digital ruble via commercial bank apps, while the Bank of Russia controls issuance and settlement. According to the central bank, exchange between the digital ruble and traditional forms – cash or deposits – will take place at a 1:1 ratio, keeping the currency “inflation neutral” and ensuring no direct impact on banks’ balance sheets.

Yet as Prokopenko cautions, “Russia’s push for a CBDC is not only about modernising payments. It is a response to Western sanctions and a bid to reshape the financial architecture in its favour.” The digital ruble could in theory allow Moscow to bypass SWIFT, the global interbank messaging system from which many Russian institutions have been cut off.

This motivation sets Russia apart from many of its CBDC peers. China, Brazil and India are piloting their own digital currencies, while countries such as the Bahamas, Jamaica and Nigeria have already launched fully operational versions. The European Central Bank (ECB) is still in its preparatory phase for a digital euro, while the United States remains undecided.

Still, Russia’s central bank is betting big. By 2024, it plans to expand testing to include nineteen more banks and broader segments of the population. If all goes to plan, 2025 will see the digital ruble woven into daily commerce. Tokens – cryptographically secured units – will track ruble flows across a blockchain-like system, reinforcing transparency and control.

Cross-border transactions

Russia is accelerating efforts to internationalise its digital ruble, positioning the state-backed central bank digital currency (CBDC) as a tool to ease cross-border transactions and circumvent the SWIFT payment network from which its financial institutions were largely excluded following the invasion of Ukraine.

With trials already under way and full-scale rollout planned for 2025, the Bank of Russia now aims to make the digital ruble interoperable with other national CBDC platforms. The move is seen as part of a broader strategy to secure the country’s access to global financial flows in the face of deepening Western sanctions.

One of the key advantages of CBDCs is their ability to “significantly simplify and accelerate cross-border settlements (provided that the appropriate infrastructure is created),” according to the International Monetary Fund. In its three projected development scenarios for CBDCs, the IMF identifies cross-border transactions as a central feature in each. Crucially, such transactions would not require interbank processes, rendering systems like SWIFT redundant.

This vision aligns with Moscow’s priorities. “Even before February 2022, Bank of Russia officials had hinted that this decision was a way to reduce Russia’s dependence on SWIFT,” the article notes.

According to draft instructions, foreign banks may be permitted to open digital ruble accounts as early as 2025. These accounts, operating on principles similar to correspondent banking, are intended to attract institutions that facilitate international trade. However, analysts caution that if the digital ruble comes under Western sanctions, “foreign banks will lose any desire to work with it.”

Talks with China on linking the digital ruble to the digital yuan are already under way, with a pilot project potentially launching in 2024. Anatoly Aksakov, chair of the Duma’s finance committee, confirmed negotiations on interoperability between the two systems. But analysts warn of a key risk: deeper entrenchment in Beijing’s financial orbit.

“In just two years, yuan-denominated trade on the Moscow Exchange went from almost nothing to nearly 54% of all transactions,” the report notes. In December 2023, 35.85% of Russia’s exports and 37% of its imports were settled in yuan. Yuan transactions accounted for $2.8bn of Russia’s $5.4bn in foreign currency exports that month – the highest such figure since January 2022.

This growing dependence on China comes as Russian firms face mounting difficulties in “friendly” jurisdictions such as Turkey, the UAE and even China itself, following a December 2023 executive order from President Biden expanding the scope of secondary sanctions. The penalties have complicated Russian companies’ efforts to settle trade, but have not halted them entirely.

In this environment, shared CBDC infrastructure with China could provide an important workaround. Yet serious obstacles remain. “Beijing is unlikely to agree to a Russian solution,” the analysis cautions. “It’s a crucial matter of independence and economic sovereignty for a country to control the technology behind its digital currency: using another country’s technology could give that other country power over the first country’s economy.”

For now, the digital ruble is a geopolitical project as much as a monetary one. Whether it proves to be a credible alternative to SWIFT – or simply reinforces Russia’s growing reliance on the yuan – remains to be seen.

 

Potential partners

China has been piloting a retail version of the digital yuan since 2019, using commercial banks as intermediaries. By June 2023, transaction volume had reached CNY1.8 trillion ($250bn), with 200mn digital wallets opened – though this still represents just 0.16% of total cash in circulation. China is also developing a wholesale digital yuan for cross-border financial use, conducting trials with Thailand, Hong Kong and the UAE via the BIS’s mBridge platform. Russia, while not part of these trials, is pursuing parallel development of its digital ruble.

Despite Moscow’s proposal for a “BRICS Bridge” platform for digital settlements and BRICS nations agreeing in principle to a shared system by 2025, no detailed framework has emerged. China’s technological leadership in CBDCs positions it to set standards for BRICS, with India taking a slower approach and Iran and Kazakhstan exploring their own initiatives.

“Still, even if technological compatibility is achieved, challenges such as determining the currency for pricing (currently done through the dollar), managing exchange rates and addressing currency turnover will need to be resolved in any collaborative CBDC initiatives,” says Prokopenko.

Russia aims to fully implement the digital ruble by 2030, though Western sanctions have accelerated its development, with real-client pilot tests beginning in 2023 instead of 2024. These trials include peer-to-peer transfers, interbank wallet transactions and payments to businesses.

The CBR is developing the platform in-house to reduce dependence on foreign technologies and mitigate the risk of future sanctions. This follows earlier domestic responses to sanctions, such as the creation of SPFS, Russia’s SWIFT alternative, and the JSC NSPK card payments operator. Since 2023, SWIFT use within Russia has been banned, and all domestic card transactions are routed through NSPK – even those using Visa or Mastercard.

The digital ruble will be integrated with existing domestic systems like the Faster Payment System (SBP), launched in 2019, which allows instant transfers and QR code-based payments. However, integrating commercial banks into the digital ruble system will require significant IT investment – estimated in the hundreds of millions of rubles – primarily for cybersecurity and platform connectivity. Each transaction will be signed with a secure digital signature, but the rollout adds strain to banks already grappling with sanctions-induced IT transitions, including switching to domestic hardware and software systems.