Russian Bank Issues First Blockchain-Based Bank Guarantee
The Credit Bank of Moscow (ICB) became the first financial institution in the country to issue a digital bank guarantee on the blockchain. The $14.43 million bank guarantee denominated in Chinese yuan was issued on the Masterchain blockchain for a client based in China.
Master chain is a smart contract protocol developed to serve as the national blockchain of Russia. The Ethereum-based network that facilitates the transfer of digital assets between two parties is currently being used by major financial service providers in the country, including VTB, Gazprombank, Promsvyazbank, Moscow Stock Exchange, and the National Payment Card System.
Credit Bank of Moscow Issues First-Ever Digital Bank Guarantee On The Blockchain
A Bank guarantee is a financial security offered by a lending institution or bank to their borrower. The bank or the lender issues a contractual agreement to ensure that the liabilities of a debtor are met. If the debtor fails to settle a debt, the bank will assume responsibility and cover it for them. A vast majority of bank guarantees are used in international trade, where it helps the debtor complete transactions when intending to purchase goods from another country.
The digital bank guarantee was issued in yuan for a client who is an importer of Chinese-made goods to the country. Under the agreement, the beneficiary will receive the promised 100,000,000 yuan ($14.43 million) in Russian rubles when a payment is made.
ICB pointed out a major advantage digital bank guarantees have over their paper-based counterparts. With digital bank guarantees, a beneficiary won’t have to wait until they receive a paper version or send a request to the bank to confirm the authenticity of the document before making a payment.
The ready-made bank guarantee, which can’t be lost or forged, is only issued after being agreed upon by three interested parties. The document can be verified on the Master chain blockchain.
Natalia Bakhova, the Director of the International and Structural Finance Department at ICB said the move to issue a blockchain-based bank guarantee was a logical step for the finance market. Russia’s first digital bank guarantee was issued in yuan because most foreign trade contracts in the country are currently denominated in the currency, and there was a growing demand from clients to enable payments in the Chinese currency.
The bank’s executive expects to see more use cases for digital bank guarantees as it will be more important to large-scale enterprises with multiple subsidiaries that accept “large” and “regular” bank guarantees.
Russia Using Blockchain Technology To Find A Way Around Sanctions
Ever since Russia announced military action in Ukraine, the country has been the target of a host of Western sanctions. However, Russia has been active in developing and adopting blockchain-based technologies to bypass the economic blockade.
Earlier last year, the Ministry of Finance and the Bank of Russia (CBR) announced they are exploring using fiat-denominated stablecoins for cross-border payment settlements after Russia was booted off the SWIFT network. The country is also working on a digital ruble that will be launched into the country’s retail sector in a pilot program on April 1.
According to reports, 13 domestic banks and other merchants will support digital ruble transactions at launch. The central bank-issued digital currency (CBDC) project was initially planned for 2024 but was fast-tracked as a result of the sanctions and the need for Russia to implement an alternative financial system to keep its economy functioning.
It is rumoured that the digital ruble will have cross-border payment functionalities. The Bank of Russia is in talks with the People’s Bank of China (PBoC) to develop a system enabling cross-border settlements using the digital ruble and the digital yuan between both jurisdictions. China is the world leader when it comes to developing CBDCs. The digital yuan or e-CNY, launched in 2020, has processed over $12 billion worth of transactions to date.