Russia’s Push into Crypto Is a Big Step Backwards
While much of the world watches in horror as Vladimir Putin advances his military invasion of Ukraine, Russia’s bitcoin, gold-linked ruble and central bank digital currencies are triggering conflicting backlash from fintech and crypto enthusiasts.
On the one hand, Russia’s move corrects and legitimizes the alternative-money approach to the world. On the other hand, they empower the ambitions of an evil leader who has been condemned by the international community.
All indications are that Russia is more focused on reviving the failed economic systems of the past than on actually leading the way with anything. Consider the country’s eagerness to dismantle its monetary system in order to achieve financial autocracy as evidence.
Russia has responded to international sanctions in recent weeks by demanding that “hostile states” pay for natural gas in rubles, while it has been proposed that “friendly” countries can claim equal resources in digital currencies such as bitcoin. can pay. At home, a population largely cut off from international payment systems such as Apple Pay, Visa and MasterCard will now be directed to the Russian central bank-managed MIR system – a potential precursor to a formal central bank digital currency.
Far from being a progressive move, these developments hark back to the – unsuccessfully – faith in technologists and data science last time Russia tried to free itself from the global financial system. This was under the grand vision of the old Soviet planned economy, known as the Gosplan, which focused on the central management of the allocation of resources between producers and consumers. The ultimate goal was to eliminate money altogether, but planners understood that a transition period involving a multi-tiered monetary system would be necessary.
According to Yakov Fegin, associate director of the Future of Capitalism program at Berggren, the system was intended to use money and prices in a passive manner, to facilitate relationships between sectors, not as a means of personal profit or wealth accumulation. . Institute and an expert in Soviet planning models.
Finally, there were three forms of funding under the Gosplan system. The Nalichny ruble, or “cash ruble,” was paid through wages that could be used domestically in the retail market, but in controlled ways. The Beznalichnye ruble, or “cashless ruble,” was mostly regarded as a bookkeeping system for use between enterprises to facilitate central planning and control. Finally, there were the perevodnyii ruble, or “transferable ruble”, used as a reserve currency for trade with “friendly” countries within the Council for Mutual Economic Assistance.
Trade with unfriendly countries, if this were to happen, would be done through informal countertrade channels, usually involving corporations involved in swap deals based on marked value. This trade would often be financed through letters of credit issued by banks in neutral states, which knew that unregistered securities or cash were good for the deal because of the money they held in their vaults – the cryptocurrencies of their day. .
However, by the mid-1980s, the system was clearly failing to deliver on its promises of prosperity. Inflation in the price of the local currency was skyrocketing, commodity shortages were visible everywhere and the black market operated almost exclusively on hard currency like the US dollar, which the Soviet system could not control.
It’s tempting to attribute Gosplan’s failure to a lack of data or insufficient processing power. In fact, in some economic sectors, it has been argued that if Soviet planners had access to today’s powerful computers and machine-learning systems, many of the capital misallocations that led to the collapse of the USSR probably would not have occurred. . This time, the theory goes, the Internet of Things and artificial intelligence are more likely to make a monetized Gosplan work.
But this is a dangerous assumption. Most Western academics specializing in this period agree that Gosplan did not fail because of lack of data or insufficient processing power. It failed because the quota-based system was based on false incentives and encouraged corruption in state-led enterprises. The system’s preoccupation with monitoring past and present behaviors, meanwhile, discourages innovation and free enterprise.
However, clues that Russia may be inclined to move in this direction, regardless of these insights, have been on the rise since the country was placed on an international sanctions list in 2014.
In 2017, I was asked at a Russian diplomatic ceremony whether the country’s plentiful supply of cheap energy would ensure that it performed well in a bitcoin-based economic framework. As the token crypto cynic in the room, I quipped a bit about how Venezuelan citizens have done little to reinvent their energy-rich economy by switching to bitcoin – a point that still stands in 2022. .
But then came Russia’s well-publicized effort to move its official currency reserves away from the US dollar toward yuan-denominated assets and gold, and a more neutral stance on crypto. By November 2020, Moscow City Hall had announced that it was planning to introduce a sophisticated citizen surveillance system to collect digital profiles of Muscovites, and an official consultation on central bank digital currencies was underway.
Perhaps most telling, it was on February 15 – days before Russia’s invasion of Ukraine – that the Bank of Russia announced the launch of its digital ruble pilot.
Knowing what we know now, it may be tempting to conclude that the rise of fintech and crypto may be playing into the hands of autocrats like Russia. But this would be wrong.
Like any weapon system, financial technology, especially cryptocurrency, is ultimately neutral. It can be used for good or bad. If Russia continues to use these resources to streamline its financial structure, limit freedoms and shut itself off the international arena, history shows it will take a huge step backwards.
Bloomberg News provided this article. For more articles like this, please visit loomberg.com.
Read more articles by Isabella Kaminska
