Russia’s National Payment System unlikely to affect Bitcoin

 

For starters, NPS is not aimed against bitcoin – it is aimed against the de facto American-based monopoly on digital transactions, which are currently conducted through Visa and MasterCard. In essence NPS will be an option for financial institutions and businesses operating on Russian soil.

 

The idea for a home-based NPS is not new either. It was announced back in 2011 as part of an ambitious plan for the creation a Universal Electronic Card (UEC) in Russia. UEC is basically a personal ID, bank card, medical insurance policy, social security and pension card all in one. The Russian government authorized the issuing of UECs back in January of 2013, but the project has gained little popularity among the population so far, with only a little over 2% of citizens showing interest.  The mere fact the Russian government has not made UEC mandatory (like birth certificates and passports) indicates that this is still very much an e-government pilot project.   

 

Now, back to the National Payment System. Few people outside of financial circles dealing with Russia had heard of the Kremlin plans for NPS before the recent political crisis in Ukraine. The arguably symbolic US sanctions imposed on Russia were by and large ridiculed throughout the country on all levels. The Kremlin mood and tone got serious only after Visa and MasterCard denied services to several Russian banks for transactions inside the country.

 

 

It is likely that NPS will be up and running within 2–6 months with Russia’s two largest banks (Sberbank and VTB) already competing for the project and it is likely that it may be made a “mandatory option” for businesses and financial institutions, only so far as to ensure that transactions can never be blocked from overseas. So, in essence, NPS will simply create competition for Visa and MasterCard in Russia. It cannot replace them because of their global reach. There are too many foreign banks operating in Russia, too many Russians keeping their money in Russia but spending it in foreign countries, too many tourists visiting Russia and spending foreign-based money in Russia. A National Payment System will guarantee a secure and uninterruptable process as well as lower service cost.

   

Customers (people) will probably not even notice the upgrade as it will be on software level most likely. ATM terminals and cash registers will be reprogrammed over a short period of time allowing people to even keep their current plastic Visa and MasterCard.     

 

So how does this affect Bitcoin and other cryptocurrencies? It does not. It has nothing to do with them. Bitcoin is still an issue very much up in the air in Russia, and under the existing legislation a ban on use is completely unenforceable from a technical standpoint. Coins are traded every day in Russia using foreign-based exchanges with Russian banks facilitating the transactions with the help of Visa and MasterCard both nationally and internationally. And if we add to the current situation a National Payment System as a digital transaction option, we will change exactly nothing. We will shop online just as we did before, with lower transaction fees, most of the money from which will remain inside the national economy. Therefore NPS can be viewed simply as an upgrade to the existing system and nothing more. As far as bitcoin and other digital currencies are concerned, neither their legal status nor market value, nor means of exchange will be affected.