Russian Bank Issues Bank Guarantee in Chinese Yuan Using Blockchain – Using blockchain technology on the Masterchain platform developed by the Central Bank of Russia, Moscow Credit Bank (MKB) has issued what it claims to be Russia’s initial digital bank guarantee exceeding 100 million Chinese yuan.
According to a statement cited by RBC Crypto, MKB clarified that the guarantee is expressed in the currency linked to the importer’s contracts and that, in the event of payment, the supplier will be paid in Russian rubles at a predetermined exchange rate.
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All three parties involved – the principal, guarantor bank, and beneficiary – have agreed to the bank guarantee. By utilizing a digital document, which is purportedly impervious to forgery or misplacement, the beneficiary is not required to wait for a paper version or seek confirmation from the bank regarding the legitimacy of the guarantee, thus providing a significant benefit.
“This is the first digital bank guarantee in the market, which was issued in yuan, through the Masterchain system. Most foreign trade contracts are serviced in Chinese currency, and the demand for payments in yuan is only growing,” commented Natalya Bahova, director of MKB’s International and Structured Finance Department.
The executive added this is a “logical step” and that it’s likely to see more such examples in the future. “The decision will be especially relevant for large groups of companies which have many subsidiaries that accept bank guarantees in large quantities and on a regular basis,” Bahova elaborated. According to the report, verifying the legitimacy of bank guarantees costs Russian companies approximately 900 million rubles per year, which is equivalent to almost $12 million.
Despite these efforts, about 0.5% of the guarantees are still discovered to be counterfeit. The associated risks are estimated to be around 75 billion rubles. In response to the sanctions imposed by the West following its invasion of Ukraine, Russia has been exploring alternative methods to reduce its reliance on the U.S. dollar and the conventional financial system.
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These measures include considering the use of other fiat currencies, exploring blockchain technologies, and adopting cryptocurrency payments as a means to bypass the imposed restrictions. As of January 2021, the “On Digital Financial Assets” law has come into effect, and since then, Moscow officials have been striving to broaden the regulatory structure to encompass decentralized cryptocurrencies such as Bitcoin.
In early December, a firm authorized by the Bank of Russia publicized the country’s first authorized digital asset transaction involving a foreign currency, the Chinese yuan. Additionally, both countries have been exploring the development of digital versions of their respective fiat currencies.