Russia to begin work on CBDC settlement system in Q1 as sanctions linger: report

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Russia’s central bank is reportedly set to start developing a cross-border settlement system using a central bank digital currency (CBDC) as part of ongoing sanctions in response to its invasion of Ukraine.

Plans to move forward with the Russian digital ruble are expected to arrive in the first quarter of 2023 and will see Russia’s central bank exploring two possible cross-border settlement models, according to a January 9 report. report by local media Kommersant.

The first proposed model sees various countries entering into separate bilateral agreements with Russia to integrate their CBDC systems.

Each agreement would be entered into to ensure that the conversion and transfer of assets between countries are in accordance with the rules of the agreements.

The second, more complicated model offers a single hub-like platform for Russia to interact with other countries, sharing common protocols and standards to facilitate payments between connected countries.

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Roman Prokhorov, chairman of the board of directors of the Association of Financial Innovations (AFI), considered that the first model was simpler to implement but less promising for bilateral interactions between countries.

The other option was more “advanced” and he felt that a first two-way system could be implemented, with China being the most likely partner given its “technological and political readiness”.

September reports claimed that Russia planned to use its digital ruble for settlements with China by 2023.

Yet others believe Russia’s CBDC game won’t be crippled by technology, but rather by politics.

Deputy Chairman of the Association of Banks of Russia Alexey Voylukov said that the introduction of a digital ruble will not change or improve Russia’s global political situation, and that the trials of the platform CBDC can only be undertaken with countries that are friendly with the Russian government and technologically ready.

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Previously, the Bank of Russia said it plans to roll out its digital ruble by 2024, with all banks and credit institutions connected to the CBDC platform.

Russia has faced mounting financial and trade sanctions since the escalation of the Russian-Ukrainian war when it launched a full-scale invasion of Ukraine in late February 2022.

Since then, there have been tried and thought of ways to circumvent the sanctions, such as the central bank considering the use of cryptocurrencies in the country “only to support foreign trade”.

The Bank of Russia and the Finance Ministry reached an agreement in September on a rule allowing Russians to send cross-border payments using crypto.