All indications are that Russia, instead of moving forward with something truly progressive, is more focused on reviving the failed economic system of the past. Consider the country’s interest in fragmenting its financial system to achieve financial automation as evidence.
Russia has responded to international sanctions in recent weeks by demanding that “hostile states” pay for natural gas in rubles, suggesting that “friendly” countries could pay for the same resource in digital currencies as Bitcoin. At home, the majority of the population will be isolated from international payment systems such as Apple Pay, Visa and MasterCard.
Far from being a progressive step, these developments go back to the last days of his belief in technologists and data scientists – failing – to free themselves from Russia’s global financial system. It was under the broader vision of the old Soviet planned economy, known as the Gosplan, which focused on managing the allocation of resources centrally between producers and consumers. The ultimate goal was to eliminate money altogether, but planners realized that a transition period involving a multi-tiered financial system would be required.
According to Jacob Fagin, associate director of Berggruin’s Future of Capitalism program, the purpose of the system was to use money and value in a passive way, to facilitate relations between sectors, not as a means of personal gain or wealth creation. Institute and an expert on Soviet planning models.
In the end, there were three forms of money under the Gosplan method. Nalichnye rubles, or “cash rubles,” were paid through wages that could be used internally in the retail market, but in a controlled way. The Bejnalichani ruble, or “cashless ruble,” was largely regarded as an accounting system for use in enterprises to facilitate central planning and control. Finally, the Mutual Economic Cooperation Council had perevodnyii rubles or “transferable rubles” for use as reserve currency for trade with “friendly” countries.
Trade with unfriendly countries, if it were to take place, would be conducted through informal countertrade channels, usually involving corporations involved in exchange agreements at a fixed price. This trade was often financed by letters of credit issued by banks in neutral states, who knew that companies were good at contracting because of the unregistered securities or cash they kept in their vaults – the cryptocurrency of their day.
By the mid-1980s, the system had apparently failed to live up to its promise of prosperity. Inflation in the local currency was skyrocketing, there was a shortage of goods everywhere and the black market was running almost exclusively on hard currencies like the US dollar, which the Soviet system could not control.
It is tempting to blame the failure of the gosplan for lack of data or insufficient processing power. Indeed, in some economic quarters, it has been argued that if Soviet planners had access to today’s powerful computer and machine-learning systems, the misallocation of much of the capital leading to the collapse of the USSR would not have occurred. This time, the theory goes, the Internet of Things and artificial intelligence are much more likely to work a demonetized Gosplan.
But this is a dangerous guess. Most Western educators agree that Gosplan did not fail due to lack of data or insufficient processing power. It failed because the quota-based system was based on misleading incentives and encouraged corruption in state-led agencies. The preoccupation of the system with observing past and present behavior, meanwhile, discourages innovation and free enterprise.
However, since the country found itself on the list of international sanctions in 2014, there have been growing indications that Russia may be moving in that direction, regardless of this insight.
In 2017, at a Russian diplomatic event, I was asked if the country’s abundant supply of cheap energy would ensure that it worked well in a bitcoin-based economic structure. As a token crypto cynic in the room, I’ve talked a little bit about how Venezuelans’ embrace of bitcoin has done little to revive its energy-rich economy – a point that still stands in 2022.
But then came Russia’s well-publicized efforts to move Russia’s official currency reserves away from the US dollar and toward yuan-denominated assets and gold, and for a more neutral position in crypto. By November 2020, Moscow City Hall announced that it plans to introduce a sophisticated citizen surveillance system for the collection of digital profiles of Muscovites, and an official consultation on the central bank’s digital currency is underway.
Perhaps most importantly, it was the Bank of Russia that announced the launch of its digital ruble pilot on February 15 – just days before Russia’s invasion of Ukraine.
Given what we now know, it may be tempting to conclude that the rise of fintech and crypto could play into the hands of dictators 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 manages these resources at the level of its financial structure, restricts its independence and excludes itself from the international arena, history says it will take a big step backwards.
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This column does not necessarily reflect the views of the editorial board or Bloomberg LP and its owners.
Isabella Kaminska is the founder and editor of Blind Spot. He has spent 13 years at the Financial Times, most recently as editor of FT Alphaville.