In a significant move towards modernizing its financial ecosystem, the Russian govt wants to use CBDC to collect tax and disburse welfare benefits. This development signals a notable shift in Russia’s approach to digital currencies, as it joins the global trend towards the adoption of CBDCs. The proposed initiative aims to streamline financial operations and enhance transparency, ultimately benefiting both the government and its citizens.
The Russian central bank, the Bank of Russia, has been actively exploring the prospects of developing a digital ruble, with several pilot projects underway to test the viability of such a currency. While the specifics are still in development, the government envisions that a digital ruble could provide substantial advantages in two key areas.
Government Eyes Digital Ruble for Welfare and Taxation
The Russian government is actively considering the utilization of the digital ruble for the disbursement of welfare benefits and is also exploring avenues to encourage individuals and businesses to utilize CBDC tokens for their tax payments. According to Finam, both the Central Bank and the Ministry of Finance are engaged in assessing the feasibility of employing the digital ruble for governmental payments. Their focus lies in facilitating tax payments and making it feasible for individuals and corporations to settle their tax obligations using CBDC tokens. As stated by Alla Bakina, who heads the National Payment System department at the bank:
“The questions [of making welfare and benefits payments, as well as CBDC tax collection] keep coming up. We, together with the Ministry of Finance and the Federal Treasury, are looking at ways to use the digital ruble most effectively in this regard.”
Is the Russian Government Exploring CBDC for Benefit Payments and Tax Collection?
Russian Central Bank officials participated in a conference earlier this year centered around the digital ruble (CBDC) and its potential applications. The influence of China’s digital yuan pilot program on Moscow’s digital ruble strategy is increasingly evident. In certain regions of the Chinese pilot program, citizens can already use the digital yuan to pay their taxes, and plans are underway for CBDC benefits disbursements. The Russian government and Central Bank representatives are now looking to follow suit hence Russian govt wants to use CBDC to collect tax.
This trend extends to China, where civil servants and various government personnel are now receiving a portion, or even their entire salaries, in e-CNY tokens.
During a fintech-focused webinar, Bakina also emphasized that Russians would have the freedom to utilize their CBDC tokens without undue constraints. She underlined the bank’s intention not to impose any significant restrictions, stating:
“Restrictions on digital ruble spending – such as only allowing coins to be spent on a limited selection of goods – contradicts the logic of the digital ruble. [The CBDC] should be ubiquitous and convenient, so there will be no restrictions; it would make no sense to create any.”
The Russian Central Bank Clarifies: Digital Ruble Will Not Supplant Physical Cash
According to Interfax, Bakina asserted that the token was not designed with the intention of gradually eliminating physical currency in Russia. She elaborated: “I don’t think that we will abandon non-cash payments. In fact, the share of non-cash transactions has already exceeded 80%.” Bakina acknowledged the presence of a segment of the Russian population who are habituated to using physical cash. She went on to mention that certain businesses exclusively acknowledge cash as a valid payment method.
Bakina concluded by saying: “I believe that we should have all sorts of possibilities [to make payments]. We need a variety of tools, including cash, cards, ordinary bank accounts, digital [ruble] accounts, mobile applications, and payment services. This helps [the economy], because it encourages competition between different forms of payment.”
Several surveys have consistently revealed that a considerable number of citizens either hold reservations about the digital ruble or lack a clear understanding of its functioning and potential benefits. Moreover, commercial banks have also voiced their concerns regarding this matter. In a recent development, the Central Bank received a significant boost as Sberbank, Russia’s largest bank, announced its participation in the forthcoming stages of the digital RUB pilot.
Russia’s pursuit of a digital ruble for tax collection and benefits distribution reflects a forward-thinking approach to financial modernization. While challenges such as cybersecurity, privacy concerns, and public perception persist, the integration of CBDCs remains a crucial part of global financial innovation. The Central Bank’s efforts to address these challenges and gain public trust, including Sberbank’s involvement, indicate a commitment to advancing the digital ruble’s adoption and the potential transformation of Russia’s financial landscape.