CBDCs (Central bank digital currencies) in Eurasia: Who’s ahead?

The global financial system is on the verge of major transformations, one of the catalysts of which is the digital currencies of central banks. These are not cryptocurrencies like Bitcoin or the usual non-cash money in bank accounts. CBDC is a new, third form of money, issued directly by the country’s central bank in a digital format. It combines the reliability of public money with the technology of electronic payments. The introduction of such tools can dramatically change the landscape of financial services, increase the transparency of payments and strengthen the monetary sovereignty of states. 

Eurasian context: Why is the region active in the CBDC race?

For the countries of the Eurasian region, the development of their own digital currencies is of particular importance. Firstly, it is the desire to reduce dependence on external payment systems and dollar hegemony, which has become especially relevant in the context of geopolitical tensions. Secondly, the large volumes of money transfers between countries, especially within the EAEU, create a demand for cheaper and faster transactions. Thirdly, it is a tool to increase financial accessibility in the regions with insufficient bank coverage. Finally, integration processes in Eurasia are pushing one to create compatible payment infrastructures, and digital currencies can become their foundation. 

Global trends and the place of Eurasia on the map

The race for the creation of national digital currencies has become a global phenomenon. If you look at the data from the analytical resource The CBDC TracKer, more than a hundred countries around the world are at some stage of the research or development of such systems. China is the undisputed leader with its digital yuan (e-CNY), which has already been extensively tested with the participation of millions of citizens. The European Central Bank is actively working on the digital euro project, while the United States is taking a more wait-and-see attitude, focusing on research. 

Against this background, the countries of Eurasia demonstrate a high level of engagement, striving to keep up with global trends and adapt them to their economic and political objectives.

Comparative review: who is involved and at what stage?

Progress in the development of digital currencies in Eurasian countries is not identical. There are clear leaders, “those catching up” and “observers”, each of whom moves at their own pace and with their own priorities. 

Russia: The digital ruble at the start

The Bank of Russia was one of the first in the region to begin active work on the digital ruble project. After the development stage of the platform prototype, a pilot project with real operations was launched in 2023 for a limited number of customers of several banks. 

The Russian model assumes a two-tier architecture: the Central Bank acts as the issuer and operator of the platform, while commercial banks are responsible for opening customer wallets and conducting all operations. The main goals of the project are to reduce the cost of transactions for businesses and individuals, as well as to create the basis for using smart contracts. The introduction of digital rubles is seen as a strategic step towards strengthening financial sovereignty.

Kazakhstan: a pragmatic innovator 

Kazakhstan is rightfully considered one of the pioneers in the field of CBDC not only in the region, but also in the world. The National Bank of the country conducted a comprehensive study, tested several technological scenarios and submitted a detailed report at the end of 2022 with a recommendation on the introduction of digital tenge. The project has gone through several stages of piloting, including retail payments and transactions with securities.

The Republic has paid special attention to offline payments, which is critical for a country with a vast territory and uneven Internet coverage. The country is currently at the stage of making a final political decision on a full-scale launch. 

EAEU: the search for a common denominator 

Other members of the Eurasian Economic Union – Belarus, Armenia and Kyrgyzstan – are at earlier stages. Their work is mainly focused on the research and conceptual level. The central banks of these countries analyze the global experience, assess the potential benefits and risks for their economies. Their interest is largely related to the prospects of simplifying mutual settlements within the EAEU and reducing the cost of remittances from migrant workers. However, limited resources and technological base do not yet make it possible to move as fast as Russia or Kazakhstan. 

Other Central Asian countries 

Uzbekistan, Azerbaijan and Tajikistan are also showing interest in the CBDC concept. Their central banks are monitoring the situation, publishing analytical materials and studying pilot projects of their neighbors. For now, the countries are taking the position of observers, preferring to wait for the results of the introduction of digital currenciesin the larger economies of the region in order to take into account their experience and avoid possible mistakes when developing their own systems.

Technological and regulatory barriers

The way to a full-scale implementation of CBDC is connected with solving a set of complex challenges. The technological side of the issue involves choosing the architecture of the platform (centralized or distributed), as well as overcoming the following challenges: 

·      Cybersecurity. A centralized system becomes an attractive target for attacks, and its protection must be absolute.

·      Scalability. The platform should be able to process millions of transactions per second without failures. 

·      Interaction with existing systems. The new digital currency should seamlessly integrate with the existing banking infrastructure.

·      Offline functionality. The ability to make payments without internet access is a critical aspect for ensuring financial accessibility.

Regulatory issues are no less difficult. It is necessary to create a new legal framework that will determine the status of the digital currency, establish rules for its circulation and delineate the responsibilities of participants. The dilemma between transparency of transactions to combat illegal activities and maintaining the confidentiality of citizens’ data is particularly acute. 

Economic implications and long-term prospects 

The introduction of CBDC can have a profound impact on the economy. On the one hand, it promises significant benefits, on the other hand, it carries certain risks. The positive effects include:

·      Reduction of transaction costs in the economy and increase in the speed of payments.

·      Growth of financial inclusion of the population without access to traditional banking services. 

·      Emergence of new instruments for the implementation of government monetary policy, for example, for the targeted delivery of social benefits. 

·      Increased competition in the financial sector due to the emergence of a new universal payment tool. 

However, there are also potential threats. The main one is the risk of disintermediation, that is, the outflow of funds from commercial banks into the wallets of the central bank, which may weaken their resource base and credit potential. In addition, the total control of money flows by the state raises serious questions about privacy protection. 

Leaders of the region and their strategies 

To sum up, one can state that in the Eurasian CBDC race, two leaders have been clearly identified – Russia and Kazakhstan. However, their strategies have some differences. Kazakhstan has chosen the path of deep technological research and comprehensive piloting, having prepared the technical base, but not forcing a political decision on the launch. Russia, driven among other things by geopolitical factors, is acting more decisively and is rapidly moving from a concept to a real pilot project. The rest countries of the region are still in the role of those catching up or observers, carefully studying the experience of the pioneers. Obviously, the future of the Eurasian financial system will largely be determined by how these countries can solve technological and regulatory puzzles and build efficient and secure national digital currency systems.