Course towards cryptography – Newspaper Kommersant No. 239 (7440) dated 12/23/2022

The process of launching a digital national currency in Russia may begin in the last days of the outgoing year. The Central Bank of the Russian Federation, together with a dozen banks, are actively testing the new technology, real operations are likely to be carried out in the second quarter of 2023. The new form of currency will not only allow the state to increase the level of control over the targeted spending of budget funds, but will also give banks the opportunity to create new financial products. However, market participants still do not know how much the introduction of a digital currency will cost them and what resources it will require from them.

Accelerated piloting

Before the end of the year, a bill on the digital ruble may be submitted to the State Duma, said Anatoly Aksakov, head of the financial committee. The creation of a prototype digital currency platform of the Central Bank (CBCB) was completed in December 2021, 12 banks are participating in the pilot project, including Sberbank, VTB, GPB, PSB, Alfa-Bank, Rosbank, Dom.RF Bank, Sinara ” and others, then three more credit organizations joined them.

During 2022, the Central Bank, together with banks from the pilot group, tested a number of operations with digital rubles (the first took place at the beginning of the year; see Kommersant on February 15), including the opening and replenishment of digital wallets, transfers between citizens, including including using mobile banking applications, payment for goods and services.

In autumn, the Bank of Russia published a new chart of accounts, which already contains an account for accounting for digital rubles. It reflects the receipt of funds in the digital wallet and their withdrawal (see Kommersant dated September 27).

As the Bank of Russia explained, although the development of the concept of the digital ruble began “in geopolitical conditions different from the current ones,” there was no need to change the goals. “The digital ruble will allow the state to increase the level of control over the targeted spending of budget funds, make targeted payments, optimize the process of returning unspent funds and other processes,” the Central Bank added. In addition, according to the regulator, similar spending control mechanisms can be useful for individuals. At the same time, against the backdrop of hostilities in Ukraine, the project terms were shortened and “the priority of cooperation with friendly countries was increased.”

The Central Bank assured that the departure of major software vendors did not affect the creation and testing of the digital ruble platform, since the solution is being developed by “an internal team of the Bank of Russia based on free software or using components from Russian manufacturers.”

Now work is underway on banking systems and the optimal client path when making transactions with digital rubles, they say in the Central Bank. In April 2023, “piloting operations with real digital rubles on a limited number of pilot bank customers” will begin, the regulator plans. Ultimately, according to representatives of the Central Bank, all banks will provide an opportunity for their customers – citizens and companies – to work with the digital ruble.

Bankers also note the planned or even accelerated work “without serious delays and failures.” At the same time, according to the majority of market participants interviewed by Kommersant, during testing, the Central Bank did not refuse any previously conceived services. Moreover, as the bankers note, during the testing process, the number of scenarios even increased relative to the original plan.

Nikolai Kozak, Managing Director for IT and Digital Transformation at Dom.RF Corporation, specified that it is not necessary to develop a separate application to implement the digital ruble: “Clients will be able to conduct transactions with it directly in the bank’s mobile application.”

According to Vitaly Kopysov, Innovation Director of Sinara Bank, the digital ruble “will enable the creation of new methods of payment for goods and services, cross-border transactions.” Olga Makhova, Director for Innovation and Data Management at Rosbank, adds that “the digital ruble will have a programmable token, which means that you can invent and link new formats for its use – for example, a huge number of services for a client related to targeted lending, as well as in segments medium and large businesses.

Maxim Khrustalev, director of the PSB Digital Financial Assets Center, believes that “in the future, new services will continue to develop, including government ones, related to the use of smart contracts for settlements in digital rubles, for example, when registering real estate transactions.”

class risks

However, bankers are still cautious about the potential financial benefits of working with the digital ruble. According to Vitaliy Kopysov, the economic model and tariffs “are not the subject of the project to pilot the new platform.”

Nikolai Kozak is even sure that under the current conditions, the instrument of the digital ruble is “not a project to make a profit.” “All financial market participants understand and accept the risks associated with the outflow of liquidity from the banking sector,” the top manager emphasizes. He adds that since the introduction of the digital ruble will be phased, financial intermediaries will have time to “adapt and adjust the structure of their balance sheets.”

The Central Bank could not name the amount that banks would have to spend to connect to the service of digital ruble wallets. “Currently, the cost of the platform and the gradual increase in capacity are being assessed, taking into account the forecast indicators for the appointment in terms of the number of transactions,” they explained.

Bankers are also not yet ready to estimate the costs of implementing the Central Bank of Central Banks. “We are seeing the emergence of a new market with an innovative product that is subject to constant changes and improvements, which, of course, affects the development and testing process,” says Olga Makhova. According to Nikolai Kozak, work is underway to form the specification of the required hardware and software, which will ensure the necessary level of information security for the industrial operation of the project.

However, in informal conversations, bankers point out a number of problems that can significantly slow down the process of introducing a digital ruble and make it noticeably more expensive.

The most serious problem, according to a Kommersant source in the market, is that the requirements for the level of information protection have not yet been determined. Today, banks are building it at the level of both software (software) and hardware, based on the requirements for the KS2 class of cryptographic protection tools.

But if the class is upgraded to KS3 (supplemented with specialized software for creating and controlling a closed software environment) or HF (used when attackers can have the source code of application software) and KA (if there is a danger of criminals accessing hardware components), the costs of banks ” will increase very significantly and, in general, the system will turn into additional billions of rubles, ”one of Kommersant’s interlocutors believes.

In many ways, it is this problem that does not yet allow providing all market participants with clear algorithms for connecting even to an already tested service.

Uncertainty with the protection class entails another problem – banks do not know what budget they should allocate for the introduction of the digital ruble for 2023. Moreover, according to a Kommersant source in the financial market, even the banks directly involved in testing the Central Bank of Central Banks have no answer, while the rest “are in even greater ignorance.”

In the future, the bankers add, problems for the development of the digital ruble can be created by the fact that it is based on blockchain technology. In today’s conditions, when operations are single, this does not create difficulties. But when the account of digital rubles goes into trillions, and the number of transactions with them goes into billions, and all chains will need to be stored, there may be a need to significantly increase both the fleet of servers and their capacity.

Thus, the advantage of the digital ruble in the form of traceability of all transactions with it can turn into a major drawback.

Maxim Buylov