The Russian Central Bank is increasing its attention on central bank digital currencies (CBDCs). In an interview with CNBC, Russia’s central bank governor, Elvira Nabiullina expressed interest in enabling interoperable CBDCs for cross border payments. The comments come at a time of heightened tensions between the U.S. and Russia.
CBDC is a digital form of currency that is issued by a country’s monetary authority. According to the Bank for International Settlements (BIS), in 2020 about 86% of the world’s central banks are exploring digital currencies in some way. While some smaller countries such as the Bahamas have issued a CBDC, as yet no major economy has done so, although China’s pilots have reached more than a million citizens so far.
Russia’s interest in CBDC for cross border payments is consistent with many central banks around the world. Digital money can enable faster and cheaper international payments, especially for remittances.
However, making the CBDCs of different countries interoperable is a challenge. “We need to think about cross border payments because if each bank creates its own technological system, it will be difficult to create connections,” said Nabiullina.
Even though most central banks are interested in cross border payments, former U.S. Treasury official Michael Greenwald told CNBC, “What alarms me is if Russia, China, and Iran each creates central bank digital currencies to operate outside of the dollar and other countries followed them”.
In 2018, President Trump barred Iranian banks from cross border payment system SWIFT, which underscores the soft power of such technologies. Now under President Biden, there’s a risk that Russia could be barred in a similar way. In fact, in September 2019, Iran said that it and Russia would switch to using Iran’s SEPAM and Russia’s SPFS. China also has its CIPS system for cross border payments. However, all of these are tiny in comparison to SWIFT.
Additionally, in 2019, Russia floated the idea of a multinational digital currency shared by BRICS (Brazil, Russia, India, China, and South Africa) countries, although nothing has been heard about that since.
Meanwhile, of the three countries mentioned by Greenwald, the one that is the most advanced in terms of CBDC is China. While its immediate motivations for issuing a digital yuan may be domestic, it is already active in cross border CBDC trials. It is participating in an experiment with Hong Kong, Thailand and the UAE for a “Multiple Central Bank Digital Currency (m-CBDC) Bridge“.
If Russia gets locked out of SWIFT, China might conclude that it’s a matter of time before it lands in the same boat. However, the disruption to international trade of such a move would be massive. From their perspective, would it be surprising if either country looks for a SWIFT alternative?
