A Russian Central Bank Digital Currency?

the-blindspot |  In the last few years, we can observe two very important technologies emerging in Russia:

• Every single shop till in Russia is now connected in real-time to the tax system. It is illegal for a shop to sell goods or services via a till which is not connected. Every receipt that you get has a cryptographic code evidencing that the transaction has been recorded for tax purposes in the central system. The man who delivered this project for the Federal Tax Service is now the deputy prime minister of Russia, Mikhail Mishustin.
• In the years since 2014, Russia has built its own internal clearing system called “Mir”. This has enabled Russian banks and commercial infrastructure to operate independently of the visa, mastercard and SWIFT as an internal matter.

Russia has already demonstrated the ability to roll technology out across the whole country in order to increase the control of the state. Russian citizens have not yet appreciated what this means – but the next step is now required and it is much bigger than before.

So why invade Ukraine?

Putin’s focus here is the manipulation of his own population.

He is going introduce a digital rouble and likely abolish cash. The technology to do this is already available. With this in place, he will be able to control his population through their wallets – monitoring everything that his people spend and deciding who should have access to money and who should not.

A software reset based around a new digital currency requires mass adoption and acceptance – and a population that is ready to accept a much higher level of centralised control.

In order to do this, he needs to isolate his country and ensure that his population is submissive and accepting of a significant change in how things work. This necessarily includes undermining confidence in the rouble as a cash-based currency and cutting Russia’s payment systems off from international markets. Then he can bring in a state-controlled digital alternative – something that the Chinese are already well on the path to implement for themselves.

This is the dictator’s dream – controlling the people via their wallets, absolutely and totally. As we have been saying ourselves: “banks not tanks”. How much he must be laughing when he hears this phrase. And we are willingly helping Putin here, we are his accomplices in this grand plan – not that there is much we can do about it.

And once the new system is in place and working, borders can come down, concessions of a kind can be made and maybe interactions with liberal western democracies resume – but now with control systems in place that can conserve his regime for the long term.

Why invade Ukraine so badly?

Putin may have overestimated the power of his forces, and underestimated the strength of resistance and vigor of international responses. But Putin probably does not need to win any war in Ukraine. He seems to be preserving his defence capabilities rather than needlessly wasting them. He is doing the invasion of Ukraine on the cheap because the invasion does not really have to succeed.

He has now achieved what may have been his objective all along – which is the financial and media isolation of Russia.

What he now needs to do is create a frozen conflict in Ukraine that he can maintain at minimum cost for as long as it takes for him to reset the control systems that he uses with his domestic population.  So that’s also why he is not sending in the expensive fighter jets, bombing Kiev or firing lots of hard-to-replace missiles. Of course, a land bridge to support his occupation of Crimea would be a useful by-product of the campaign – but this is not the main objective.

Putin has no actual interest in trying to wipe Ukraine off the map – only creating the conflict narrative needed to isolate his population for a period to get them to accept a new way of living day-to-day. And we should also note that he continues to sell his Ukrainian adventure to his local people as a “strategic operation” not as an invasion – which is because it might not be about an invasion (unless it has to be) and he has no intention of seeing it through.

If Putin is not mad?

So let’s assume that Putin is not actually mad. Plan A might not have worked – but he surely has plan B, whether or not he arrives there by design or accident.

He is a very clever and capable man – with enormous resources and he is focussed on maintaining control and absolute power over his Russian subjects. After more than 20 years in charge, he probably does not have any other choice.

Putin does not care about us. Putin does not care about the people of Ukraine. Perhaps we are all his useful fools. Whatever we might think, the agenda with Putin is always domestic. Perhaps the real targets and ultimate victims of the Ukrainian invasion are going to be Russian?