Yesterday the Russian Prime Minister, Mikhail Mishustin, decreed a December 2022 deadline for clarifications on the use of digital assets and digital currencies for cross border payments. The news came as the Chinese Yuan made up 26% of Russia’s foreign exchange transactions in August, although the reason given was that the Chinese currency was a good surrogate for the U.S. dollar.
The government decrees issued yesterday covered tokenizing real world assets for settlement, cryptocurrencies, as well as a digital ruble or central bank digital currency (CBDC).
As previously reported, the Ministry of Finance is in discussions with the Central Bank of Russia about potentially using cryptocurrencies for cross border commercial payments to address sanctions. There is also interest in creating commodity-based tokenized assets – under Russia’s Digital Finance Assets (DFAs) framework – to use for settlement.
In yesterday’s government decree, by December 1, the Ministry of Finance and the central bank must submit agreed proposals for DFAs to “contribute to the uninterrupted payment for the supply of goods from abroad and for export.”
Moving onto cryptocurrencies, by December 19, the Prime Minister expects to see draft legislation covering “the issuance, organization of issuance and circulation of digital currency in Russia in terms of regulating mining, as well as the use of digital currencies in international settlements.”
And finally, by the same date, he wants to see proposals for the digital ruble for use in the “budget process”. That might mean social security and welfare payments. Last month the central bank provided a timetable for a CBDC, with pilots to commence in 2023.
State company Rostec to use tokenized assets for settlement
In June, Rostec, the state-owned conglomerate active in the defense sector, said it developed a solution on the CELLS blockchain platform that supports multicurrency payments to sidestep the SWIFT cross border payment network.
Last week Anna Sharipova, a Rostec executive, mentioned the use of digital assets – tokenized real world assets – as a settlement mechanism for importers and exporters in the face of sanctions. She said it was working on localized pilots, which would have restrictions and initially might not include DFAs, which the central bank strongly regulates.
Russians switch to the Chinese Yuan
Meanwhile, last week, the Central Bank of Russia reported that the Chinese Yuan made up 26% of the volume of foreign exchange in August. Rather than doing trade with China, the rationale is the peg of the Chinese currency to the dollar. So Russians are using the Yuan as a dollar surrogate.
It explained the switch (using Google translate): “Buying RMB allows professional market participants to manage a position in unfriendly currencies – primarily in US dollars, since there is a high correlation between CNY/RUB and USD/RUB rates. On the long-term horizon, these currency pairs change in the same direction, insignificant differences in the movement of rates are observed only in certain short-term periods.”
While Russia’s CBDC has yet to start its pilot, it’s notable that China is involved in a multi-CBDC cross border payments pilot, the Multi-CBDC Bridge Project, with countries considered ‘friendly’ by Russia: Hong Kong, Thailand and the UAE.