In the ongoing discourse surrounding the potential decline of the US dollar’s global dominance, a pivotal aspect has emerged, shedding light on the true systemic value of central bank digital currencies (CBDCs): their role as a cross-border payment solution.
In a narrative characterized by the persistence of traditional viewpoints, the resurgence of discussions surrounding the “dollar dethroning” thesis, ignited by last month’s BRICS Summit, has unveiled a crucial use case for CBDCs that has until now received relatively less attention. This role is none other than serving as an efficient instrument for cross-border payments.
In the world of innovation, widespread adoption and substantial impact often require a catalyst—an external force that surmounts the inertia of the status quo. Such an impetus appears to be emerging in the realm of CBDCs, which might have otherwise remained in a holding pattern of pilot projects, vying for policymakers’ attention alongside numerous other priorities.
The catalyst in question is the extensive set of US financial sanctions imposed on Russia. In response to these sanctions, Russia has accelerated its efforts to establish the e-ruble as a viable alternative. Notably, the enabling legislation for the e-ruble passed through both houses of the Russian federal parliament in August and is poised to be signed into law by President Putin in the coming week.
The Central Bank of Russia (CBR) has underscored one of the primary benefits of the e-ruble: its ability to facilitate cross-border payments, offering a lifeline for international trade in the face of mounting sanctions.
With Russia effectively excluded from the global US dollar system, the nation has been compelled to explore alternative avenues for conducting international trade. The two most readily available options are conducting settlements in the national currencies of trading partners and employing the Chinese Renminbi (RMB) for transactions with nations other than China itself. Consequently, the RMB has emerged as the settlement currency for an increasingly significant portion of Russian exports, and particularly for imports.
This shift reflects a broader trend where CBDCs are gradually proving their worth as a pragmatic solution to the challenges posed by cross-border transactions, underpinning the evolution of the global financial landscape.
