For years, Russians have turned to cryptocurrency as a way to cushion themselves against the volatile fluctuations of the ruble and the country’s overall economic instability. A recent study found that Russians own more wealth in cryptocurrency than they do in gold or mutual funds, with 6% of Russians adopting cryptocurrency as of 2023.
Perhaps interpreting this as a high demand for digital payment solutions, the Russian government has been fast-tracking the development of a digital form of the ruble. This Central Bank Digital Currency (CBDC) will enable Russians to pay using an electronic device without a third party interface and at no cost to the Russian citizen when it publicly launches as early as 2025.
While enabling Russians to pay electronically is certainly providing a more convenient method of payment for some transactions, an important component of Russians’ interest in cryptocurrency goes beyond its digital modality. Bitcoin and Ethereum, held by a respective 30.8 and 32% of Russians according to a government survey in 2021, are not centralized bank products, and they are completely independent of fiat currencies.
In other words, Bitcoin and Ethereum offer Russians refuge from the volatile ruble. As the war in Ukraine progresses and sanctions against Russian continue, the ruble is becoming increasingly devalued, with the Moscow Times recently reporting the lowest value in 15 months. While the mutiny led by Yevgeny Prighzohin certainly is impacting the ruble’s power, there are many factors at play that are contributing to the drop, and Russia is running out of options to slow the decline.
Russia even helped legitimize externally-owned cryptocurrencies last year by allowing citizens to pay with them for foreign goods when Russian banks were cut off from SWIFT. Prior to that, the central bank had taken an antagonistic stance against Bitcoin and Ethereum and similar coins.
With sometimes no option to even use the ruble due to Russia’s actions on the world stage and the resulting sanctions the country is facing, Russian citizens have had little choice but to adopt cryptocurrencies. As such, it is no surprise that the Russian bank is attempting to position itself as the primary option for digital payments – but with a rapidly declining ruble to back it up, making the switch to digital isn’t likely to drum up the support for the ruble that Russia is looking for.
Russia remains hopeful, however, that with a CDBC in place, dependence on SWIFT will crumble all together. “…If there are such agreements, then the integration of digital currencies can really replace SWIFT, because payments and information on them will take place in a completely different settlement infrastructure than now,” said Olga Skorobogatova of the Bank of Russia during an interview with Forbes.
Removing SWIFT from the equation would lessen the pressure on Russian citizens to use other forms of digital payment to sidestep restrictions and pay for foreign goods, or so the theory goes. Whether Russia’s CDBC will follow in Nigeria’s footsteps with little uptake or whether the digital ruble will see a legitimate surge in usage when it hits the stage in a few years remains to be seen. What is certain, however, is that more and more Russians will be turning to noncentralized cryptocurrencies in the meantime, especially as crisis events happen in the region. Russia might be a unique case given its current quagmire in Ukraine, but it does highlight the reliability of cryptocurrency when people turn to it in times of strife.