Myths and Facts About the Digital Ruble

So, what exactly is the digital ruble?

What is the difference between cash and non-cash money? Who issues cash and non-cash currency? And how does the digital ruble differ from non-cash funds?

Let us try to answer these and other questions in this article (although, to be honest, I cannot promise a complete answer).

Let us begin, in good old tradition, with the history and theory of money — we cannot move forward without it.

Originally, money represented a standardized value exchanged for another value. For instance, a gold coin of a certain weight. Over time, banknotes appeared — debt instruments that granted the holder the right to claim a certain amount of tangible resources (such as gold) from the issuer. This system was known as the gold standard.

Alongside this, gold-backed banknotes became a full-fledged replacement for gold in circulation. At the turn of the 19th and 20th centuries, many economists distinguished between “banknotes as money” and “credit notes.” Nevertheless, these credit notes performed the same functions as money-based banknotes. As you can see, things were already complicated.

Then, the gold standard was abolished, and matters became even more interesting. What, then, backs a modern banknote? For example, under Russian law, the Central Bank Act includes a declarative provision stating that banknotes are certain vague debt obligations of the Central Bank, backed by a fraction of its assets. Economists often say that money represents a “conditional value of the issuing country’s economy.” Yet it is not only the value of the economy that matters. In reality, the value of a banknote depends on an enormous number of conditions.

Now, we can reflect on how cash differs from non-cash money. Despite the quasi-debt nature of money, modern consensus holds that cash is a physical object — a tangible valuable item. Non-cash funds, however, are classified as “other property,” since they merely represent a claim to receive such a tangible item (or to use it as a means of payment).

These distinctions might seem irrelevant to an ordinary user, surfacing only in specialized academic or legal disputes. Yet, they concern everyone. After all, it is one thing to possess the right to demand something from someone — and quite another to actually own that thing.

In other words, a coin in your pocket is an object that you personally possess, while the money “on your card” represents the bank’s obligation to give you that coin upon request.

Now, the big question: who actually issues money — the Central Bank?

The answer is both yes and no. In practice, commercial banks also issue money, specifically non-cash funds. This process is known as “financial intermediation.”

Example:

Vasily deposits 10,000 rubles in Sberbank, which “reserves” 20% of it with the Central Bank. The next day, Innokentiy comes to Sberbank and receives a non-cash loan of 8,000 rubles. He then opens an account at VTB Bank and deposits his 8,000 rubles there. VTB reserves 20% of that amount and issues a loan of 6,400 rubles to Viktor.

As a result, from a single 10,000-ruble deposit, the following is created:

Deposit of 10,000 rubles
Loan of 8,000 rubles
Deposit of 8,000 rubles
Loan of 6,400 rubles
Total: 32,400 rubles

Thus, the money supply grows. Naturally, if obligations to Vasily and Innokentiy must be fulfilled while Innokentiy and Viktor fail to repay their loans, the banks will lose money (and potentially collapse). However, under conditions of stable economic growth and a healthy banking sector, this does not occur. In this way, excessive central planning of money issuance is avoided, allowing the market to self-regulate according to supply and demand.

The Central Bank, for its part, influences the rate of money supply growth per unit of currency through reserve requirements, deposit volume management, and other tools. It also records and monitors non-cash funds, whose total volume is several times greater than the amount of cash in circulation.

And now, digital money enters the stage.

To understand what it is, we can draw an analogy with Bitcoin. Bitcoins exist on a distributed ledger and are “mined,” meaning they are exchanged for computing power. Digital money, on the other hand, operates within a centralized ledger, meaning it has a single issuer — the Central Bank.

In practice, accounts with digital money are held on a special electronic platform of the Bank of Russia (perhaps the very “single Central Bank account” that phone scammers once dreamed about). These funds can also be transferred to so-called “cold” digital wallets.

A similar system, by the way, already exists in Nigeria.

There is no “issuance” or “mining” of the digital ruble. The Bank of Russia simply increases the balance of the digital ruble account by converting existing cash or non-cash funds into digital rubles at a one-to-one ratio. In other words, the Bank of Russia does not “create” digital rubles — it transfers money from traditional bank accounts into units of digital currency at a 1:1 rate.

The digital ruble is stored on the Bank of Russia’s digital platform, while commercial organizations will carry out payments on behalf of their clients who own digital rubles. This differs from the system in which banks “create” non-cash funds with the Central Bank’s authorization.

The project also involves the development of a separate IT infrastructure that will include the use of so-called smart contracts (and here arises the question: what are smart contracts and what problems do they pose?). This is a crucial point, because such a system would realize the long-held dreams of banker-futurists (if such people still exist). However, this also means that in the absence of proper regulation, banks will have to independently design technical solutions to integrate the Central Bank’s imposed system — and consequently, the launch of the digital ruble platform may face repeated delays. Well, it would not be the first time.

Conceptually, this is an entirely new system. It likely concerns those very “digital rights” — or perhaps not, because, frankly, it is hard to say for sure. On the one hand, the digital ruble carries no debt obligation; its value is intrinsic. On the other hand, it cannot be legally recognized as a physical object since it is “immaterial,” and by definition, physical objects must be material.

Let me add my two cents.

Most likely, I will be criticized for this, but the objects of the surrounding world are always material. However, non-cash funds are a rather specific phenomenon, because in the strict sense they are not money, but merely a means of accounting for it. The classification of non-cash funds as physical objects is possible only in the sense that somewhere there exists a record stating that a certain person owns this “object.” But what about digital money?

It is debatable whether digital money constitutes a debt obligation or a claim to demand something. It has intrinsic value as a final entity recorded in a ledger. Another issue is that control over this ledger is exercised by a quasi-governmental authority.

We can trace an interesting pattern in the history of money. Originally, money was something (often a good) for which other people were willing to exchange their goods. Over time, the economy, law, and the state became more complex, and so-called monetary surrogates emerged (that is, something derived from what people agreed to accept in exchange for value) — such as banknotes. Later, those monetary surrogates themselves became money, which in turn gave rise to their own surrogates (non-cash money). Now, those non-cash surrogates are becoming the new money — and they, too, have produced their own surrogates (the digital ruble).

Since money has lost its “materiality,” it can no longer be regarded as a physical object — which, in fact, is rather odd. After all, a record stating that I possess certain funds seems quite material, regardless of where it is stored. Similarly, the legal distinction between documentary and non-documentary securities has become highly conditional — and so-called “non-documentary” securities are often treated as documentary ones (since there is a record, there is, effectively, a document).

Well then, since we have ventured this deep, let me, following L. G. Efimova, quote Serge A. Cablan:

“In cyberspace — whether it be sound, text, graphics, video, etc. — information always acquires a computer expression, which is usually digital or analog. Digital information is a set of binary values, for example, ‘1,0,1,0,1,0,1,’ where 1 represents a closed contactor for the value ‘true’ and 0 represents a closed contactor for the value ‘false.’ In contrast, when the computer expression of information is analog, it is transformed into variations of another continuous physical quantity. In both cases, the result manifests itself in sets of electromagnetic impulses — immaterial, fleeting, and characterized by their ability to disappear without a trace (and eventually be replaced by others, equally without a trace of substitution).”

To this, I could reply that, first of all, cyberspace is as much a continuation of our material world as a wire carrying electricity — and indeed, any physical object can be expressed in terms of electromagnetic relations.

In any case, when studying money, one cannot escape the feeling of touching a Heideggerian reality, in which an object always reveals only part of its properties, while others are continually “withdrawn” from reality, only to return later — prompting lawyers to keep writing their critical essays.

Thus, what is digital money? It is either a form of digital rights or a thing — a distinct category of money, separate from traditional rubles, recorded on the Central Bank’s electronic platform. Just imagine how easily the authorities could control the flow of monetary transactions! I suggest starting with state-owned corporations and similar entities for auditing the movement of budgetary (and quasi-budgetary) funds — and leaving private individuals alone.