"New opportunities for the population": the head of the State Duma Committee on the Financial Market Aksakov on Islamic banking and the digital ruble

- Anatoly Gennadievich, one of the key topics of this forum is the prospects for the development of Islamic banking in Russia. What is this tool and what are its key differences from the banking system we are used to?

- Islamic banking is based on the principles of Sharia, which prohibits the receipt of interest income. In this case, the money is given in installments, the process is similar to project financing. That is, the bank provides funds for the implementation of a project, and later the income received from this project is distributed among the investment participants.

So far, the law has been adopted in the first reading, but in June we expect to adopt it in the second and third. Accordingly, from July 1, we plan to launch the project in four pilot regions. These are Tatarstan, Bashkortostan, Dagestan and Chechnya.

- Are there any plans to extend the mechanism throughout the country in case of successful tests?

"The experiment will continue for two years, and we expect it to be successful. Then it will be possible to launch it throughout Russia. At the same time, banks that have branches in other regions are already actively participating in the initiative, but the main emphasis will be placed on the four regions that I have mentioned.

- Is it possible to say that such a tool will lead to the emergence of an alternative banking system in Russia?

"I don't think so. Rather, it is an addition to the existing mechanism, which provides new opportunities for the population. We have a fairly large number of citizens professing Islam - about 20 million people. Many representatives of Muslim countries also come to us, who will also be able to use this tool. In general, the initiative will be available to all citizens, regardless of religion. I am sure that the mechanism will be in demand.

• Anatoly Aksakov on the prospects of Islamic banking in Russia

- What can be the annual turnover of funds in the new system?

- We are approached by a lot of people who want to work in this market. In the future, these are millions of our citizens and representatives of other countries. Moreover, I have already had contacts with representatives of Islamic banking abroad. They also spoke about the interest in participating in the use of this tool in our country. The estimated turnover is more than $11 billion only due to external injections into various projects through this channel.

- Now many experts pay attention to the situation around the public finances of Russia. From January to April, the budget deficit exceeded 3.4 trillion rubles, which turned out to be half a trillion more than provided by law for the whole of 2023. What is the reason for such dynamics? When and how can the balance of income and expenses improve?

- The government, from my point of view, correctly took the path of starting to unpack the budget immediately at the beginning of the year. Previously, we collected applications from the regions, and the state allocated money to them gradually, often somewhere behind what was needed.

Now we have made an advanced movement: the government has already allocated 52% more funds from the budget than last year. The money went to fulfill government obligations. That is, it was an advance payment, and then during the year the regions will make payments to the budget due to the inflow of tax revenues. As a result, the situation with public finances should stabilize, and by the end of 2023 the deficit will be at the level of about 3.5% of GDP.

- Is it safe to say that the government will have enough budget funds to fulfill social obligations?

- All obligations will be fulfilled. No one is going to cut social spending. The process is proceeding in the working direction. Moreover, we see that inflation rates are now quite low. Even at certain moments, there were signals that inflation was below the level that we planned in the draft budget for the current year.

- Indeed, at the end of April, annual inflation in the country slowed down to 2020.2% for the first time since February 31. At the same time, the value turned out to be three times lower than the average for the eurozone. What is the reason for such dynamics and how can the rate of price growth change before the end of the year?

- The low level of inflation in our country is mainly due to the fact that a year ago the growth of consumer prices in the country accelerated very much. Now there is a comparison with last year, and this high base effect is reflected in the current indicators.

In general, today inflation in Russia is under control. It is manageable from the point of view of the work of the Central Bank. Nevertheless, since the base effect will gradually come to naught, I think that by the end of 2023, the indicator will slightly exceed the Central Bank's target of 4% and will be up to 6.5%.

As for Europe, inflationary processes are growing very rapidly. Moreover, in some countries, double-digit price growth rates are recorded. This is partly due to the sanctions imposed on Moscow. By replacing cheap Russian energy resources with more expensive supplies from the United States, the European Union has created problems with inflation for itself.

- In 2022, unfriendly countries froze almost half of our gold and foreign exchange reserves. Meanwhile, in the West, disputes do not subside on how to dispose of the money actually stolen from Russia. As far as this is possible?

- About $300 billion of our reserves are frozen. The assets of foreign investors in our country have been frozen for about the same amount. That is, they cannot now withdraw this money from Russia, even if they wanted to. That was our response.

The West cannot find any legal grounds to take our assets, and they are unlikely to succeed - in fact, they encroach on private property. Such a move will send a signal to other countries that hold assets in the West that they can do the same.

- One of the most discussed topics in the world in recent weeks has been the growing threat of default in the United States. How likely is such a scenario and how could it affect the global economy?

- Formally, the United States is already in a state of default. In reality, they do not receive as much income as they need for their own existence and development. This problem is solved at the expense of the printing press and the paradigm that they created after World War II, when the whole world actually finances the American economy.

Sooner or later, a real default will take place. As soon as the world feels that investing in this abyss is risky, then gradually more and more countries will begin to curtail the process.

• Anatoly Aksakov on the possibility of default in the United States

It is clear that this will not happen today. I think now the Democrats will come to an agreement with the Republicans and the parties will eventually make certain concessions to each other.

Such negotiations are a normal political process, but in the United States it takes the form of a huge snowball rolling down the mountain, which is constantly increasing. One day there will come a time when it will no longer be possible to negotiate, and the whole world will understand this. Then countries will stop filling this ball and it will simply explode.

- Returning to the situation in the Russian economy: since April, fluctuations in the dollar and euro exchange rates have intensified again in the country's foreign exchange market. How can you explain this and how do you assess future prospects?

- From an economic point of view, the dollar and the euro are no longer as important for us as they were two years ago. Previously, we actively used them to pay for goods or finance various projects, but now the situation has changed. The demand for them is falling, so I think it's not worth worrying about here. Rates are likely to remain close to current levels.

At the same time, we see that the demand for yuan is growing steadily in Russia, and the demand for rubles is growing among our Chinese partners. Accordingly, the situation here is more stable from the point of view of both exchange rate formation and financial relations in general.

- In 2022, against the backdrop of unprecedented sanctions, Russia's GDP decreased by only 2.1%, although initially many experts predicted a more powerful collapse. Now, a number of departments and international organizations are alternately improving forecasts regarding the prospects for the country's economy. What assessments do you follow?

- The most acute phase of the economic downturn in Russia occurred in the first half of 2022, when the level of interaction with Europe and the United States sharply decreased. To date, we have already largely won back those sanctions losses, so I think that this year GDP growth will be plus or minus 2.5% and next year it will remain about the same.

Of course, taking into account the challenges facing our economy, we would like to have a higher growth rate of 5% or even 10%. It is quite possible that in the future it will be so. We have a large program for the restructuring of the economy, which the government launched even before the sanctions. If the authorities do not deviate from this path, then we will be able to have very serious growth rates.

- Back in April, it was planned to start testing real payments with the digital ruble in Russia, but the tests have not yet been carried out. What is the reason for the delay and when can the digital ruble be introduced in Russia?

—We really planned to adopt a law on the digital ruble before April 1, but it did not work out. There were very heated discussions, but this is normal, because the government, the Central Bank, State Duma deputies, and financial market participants participate in the discussion at once.

Now we are close to the adoption of the law on the digital ruble. We will slightly adjust the law on digital financial assets, as well as adopt a law relating to mining, and establish liability for the illegal use of the same cryptocurrencies. This entire package of laws required serious discussion, since they need to be adopted in a complex, which will make it possible to systematically solve the problem of using digital currencies.

• Anatoly Aksakov on the digital ruble

Most likely, we will adopt this package of laws in June and, accordingly, from July 1 we will begin testing with electronic currency. It is clear that the digital ruble will not enter our reality immediately, but gradually, as we gain experience. But I am sure that in the future many flows will go using the digital ruble.

- What will this give to the economy and the population?

- Digital rubles, as well as, for example, digital yuan, will allow us to better circumvent sanctions. Now the United States, with its powerful banking system, can influence various financial and trade operations. Meanwhile, digital flows are autonomous, and the States will be able to influence them in any way.

For the population, operations should become more convenient and, most importantly, safer. The money will be in the electronic wallets of citizens and actually stored in the Central Bank - the most reliable institution of the financial system.