Russia has decided to embrace technology and make it work both for the government, businesses and consumers.
Russian President Vladimir Putin has made history today, when he endorsed the creation of a soon to be unveiled CryptoRouble, the world’s first cryptocurrency endorsed by a state.
Russian monetary experts and political leaders have recently begun engaging in a debate which pitted monetary conservatives against monetary radicals. Most Russian officials agreed that allowing the use of western designed (though not western state endorsed) cryptocurrencies such as Bitcoin, was not compatible with Russian financial security concerns. China, for example, reached a similar conclusion about existing cryptocurrencies.
In Russia, the debate then quickly evolved into to a question over what role if any, a government and central bank should have in respect of cryptocurrencies. Conservatives argued that the entire process of blockchain cryptocurrency technology should not be accepted as a legal alternative to traditional state issued notes, while radicals argued for the creation and regulation of a uniquely Russian cryptocurremcy. The radials have clearly won and appear to have been embraced by President Putin.
Here’s What We Know About CryptoRouble
The CryptoRouble is being worked on at the moment and should be available soon, although a precise timeline is not yet available.
“They can be exchanged for regular roubles at any time, though if the holder is unable to explain the source of their CryptoRubles, a 13 percent tax will be levied. The same tax will be applied to any earned difference between the price of the purchase of the token and the price of the sale”.
Existing cryptocurrency exchange rates are based on the supply of a given cryptocurrency, in proportion to demand for converting such a cryptocurrency into a traditional currency, at a given time. By contrast, it is expected that the CryptoRouble will have an exchange rate related to the Rouble, although it is not clear if it will be formally pegged to the Rouble. Such a pegging scenario does however seem initially probable.
While advocates of autonomous cryptocurrency exchange will almost certainly adopt the traditional ultra-libertarian line that any government regulation into cryptocurrencies makes them scarcely different from using traditional currencies in the online domain (Paypal for example), long time advocates of cryptocurrency in the retail and wholesale sector will almost certainly look with interest to this new development.
A Russian CryptoRouble that can be easily exchanged for traditional Roubles in Russia and ostensibly anywhere else in the world, will automatically give the new cryptocurrency a marketplace confidence that many alternatives currently lack. Such a phenomenon will de-mystify the process for many possible cryptocurrency users.
At the same time, if in the eyes of the Russian government, a CryptoRouble is as legitimate a currency as the Rouble, it will allow wholesalers, retailers and possibly even independent financial traders to use the CryptoRouble to avoid the sanctions against Russian banks which their own anti-libertarian western governments have imposed.
Additionally, if the CryptoRouble becomes easily convertible to popular western originated cryptocurrencies such as Bitcoin, it would solve the problem of Bitcoin users being ‘shut out’ of the Russian market. All one would need to do in order to engage in transactions with Russian businesses using a cryptowallet, would be to digitally exchange one’s Bitcoins (or any other existing cryptocurrency) for a desired amount of CryptoRoubles. The aforementioned process would generally take the same amount of time or even less than a traditional online bank transfer.
In this sense, the CryptoRouble helps open up Russia for new entrepreneurial ventures while insuring that possible fraud and money laundering loopholes are closed.
During September’s BRICS Summit in Xiamen, there was a great deal of discussion regarding the establishment of a cryptocurrency for the BRICS nations (Brazil, Russia, India, China South Africa) and their partners.
Furthermore, Russia has become the number one global market for the Chinese mega online retailer AliExpress. An easily convertible CryptoRouble has the potential to make such transactions even more beneficial in the future.
India, which is currently suffering a monetary crisis after Prime Minister Narendra Modi eliminated the 500 and 1,000 rupee notes, could stand to benefit from a new, legal and legitimate means of monetary exchange. A BRICSCoin could help to stabilise India’s monetary markets after Modi’s decision to ban the 500 and 1,000 rupee notes, hit the incomes of many working class Indians. In a country where more people have modern phones than old fashioned bank accounts, a BRICSCoin could be a form of salvation, as well as a way to modernise the monetary sector with few infrastructural requirements. In this sense, a BRICSCoin could also help to draw India back into the BRICS fold after the recent Doklam/Donglang border dispute caused tension between New Dheli and Beijing.
Overall, having a cryptocurrency that is directly tied to a traditional Rouble, could end up making the Rouble an increasingly popular international currency of exhcange and in so doing, take a bite out of Dollar dominance for small and medium exchanges just as Russia’s commitment to conduct bilateral international trade in national currencies, is steadily doing in respect of large sovereign transactions and deals between major corporations.
While monetary radicals throughout Russia have welcomed the move, President Putin justified the creation of the CryptoRouble on far more pragmatic grounds. He stated,
“I confidently declare that we run CryptoRuble for one simple reason: if we do not, then after 2 months our neighbours in the EurAsEC (Eurasian Economic Community) will”.
In other words, ‘if you can’t beat them join them’. Implicit in this logic, however, is that since Russia has blazed a self-described inevitable trail, others will now be even more likely to get on the state-sanctioned cryptocurrency bandwagon. Thus, Russia could be at the forefront of a pan-Asian phenomena that could eventually go global. This will also translate into Russian blockchain technology becoming uniquely attractive to other states looking to develop their own ‘official’ cryptocurrency.
In this sense, Putin has done what the music industry infamously did not do in the late 1990s. In the late 1990s, illegal peer-to-peer music download services allowed web users to download free music that did not pay the owners of the copyrighted sound material. Using Metallica as the public face of the lawsuit, the major western record labels sued the largest such service, Napster. The record labels won the lawsuit and the battle but ultimately lost the war. By the time the legal actions against Napster were won in favour of the record companies, the cat was out of the bag and new illegal file-sharing services popped up every day, but more importantly, entrepreneurs from the e-commerce and software world, developed legal alternatives to Napster that continue to dominate the marketplace (iTunes, Spotify, Amazon, Google Play etc).
Where the music industry used to handle the distribution of recorded music, often up to and sometimes including the retail point of sale, today, the music industry is having to work in a largely subservient role, with companies that are newer than many of their best selling digital albums. The music industry tried to sue technology into oblivion and instead, the next generation of technology companies have largely consigned the music industry to being a shell of its former self in both North America and much of Europe.
Russia has avoided the pitfall of the 1990s US/EU music industry, albeit on a much more substantial scale. Just as Paypal and other online apps have destroyed many physical bank branches, in the coming years, there is a very real possibility that as cryptocurrencies get easier to use and become more widely accepted for day-to-day transactions, they could supplement the largely old fashioned banking/monetary system. When this happens, countries that reject cryptocurrencies for fear of not being able to collect revenue from such transactions, will find themselves totally shut out.
Russia has avoided this pitfall by embracing technology and making it work both for Russia, for consumers and for commercial interests. It’s a win-win situation and this is almost certainly, only the beginning.
Top photo | A commemorative silver coin issued by the Central Bank of Russia for the July SCO and BRICS summits in Ufa, June 2015.