Digital ruble rise threatens future of conventional banking in Russia

Anatoly Aksakov, the chairman of Russia’s Financial Market Committee in the State Duma, suggested that the Digital Ruble, a central bank digital currency (CBDC), could potentially render traditional banks redundant, as local media outlet Ria reported on Sept 5.

Aksakov reportedly said at a media forum AIF Media meeting that these traditional financial institutions will eventually “fade away” and find new applications as part of the infrastructure for digital financial assets. He said:

“As for the role of banks, I think that their role will fade in the future with the development of blockchain…Perhaps a bank is not needed as an institution, since the digital ruble will be very much technologized.”

The lawmaker further noted that the Russian apex bank has pegged digital rubles’ daily use to a maximum of 200,000 Rubles. He added:

“One of the reasons is the separation of the banking system from cash, because people from banks will have to move to the Central Bank information system.”

CBDCs and banks

As blockchain gained prominence, numerous traditional financial institutions and central banks across the globe embraced this technology and integrated it into their systems with the development of central bank digital currencies (CBDCs) and other use cases.

However, an IMF report cautioned that while CBDCs hold significant promise, they may bring unintended consequences, especially for monetary policy, if not meticulously designed. The report stated:

“CBDCs can, however, induce changes in the retail, wholesale and cross border payments that have negative spillover effects on monetary policy, through their effects on money velocity, bank deposit disintermediation, volatility of bank reserves, currency substitution, and capital flows. Countries most vulnerable are those with banking systems dominated by small retail deposits and demand deposits, low levels of digital payments and weak macro fundamentals.”

Binance could leave the Russian market following controversies around its in the region, the Wall Street Journal reprted on Aug. 28.

In a statement quoted by the newspaper, one Binance representative said that “all options are on the table, including a full exit.”

News of the potential Russian exit comes alongside an update to the company’s Russian announcing several new rules for P2P exchange users. Binance stated that Russian users can now trade on the P2P platform in fiat currency in rubles (RUB) only and that this option is restricted to KYC-verified users residing in Russia.

Furthermore, the new rules state that users who reside outside of Russia can no longer trade rubles on the P2P exchange. Those users are also barred from trading with the euro (EUR), the U.S. dollar (USD), and the Ukrainian hryvnia (UAH).

It also appears that rubles are no longer an option for non-Russian users. When CryptoSlate accessed Binance’s P2P platform without an account from a U.S. location, rubles were not listed as an option. The platform nevertheless listed one Russia-based trader who relied on non-ruble currencies at a foreign bank.

Binance’s Russia controversies are ongoing

Previously, Binance attracted controversy because it offered support for certain sanctioned Russian banks on its P2P platform. The company removed five of those banks on Aug. 25 but continued to offer support for various other Russian payment options. About 16 banks and payment channels were listed as available at that time.

Separate reports from the Wall Street Journal on Aug. 22 suggested that Russian users conducted $428 million in Binance P2P trades between October and March. That report also said that the U.S. Department of Justice (DOJ) is investigating Binance over possible sanctions violations, in line with earlier reports dating back to May.

Current controversies primarily concern Binance’s P2P exchange rather than its main exchange. Binance imposed account limits on its main exchange in April 2022 to comply with sanctions against Russia; it has since lifted those restrictions without controversy.

Binance had no additional comments at press time.