Kazakhstan has started a public consultation for the launch of a central bank digital currency (CBDC).
- Kazakhstan plans to pilot technology for the digital tenge
- Digital currency initiatives
- Benefits of the BIS partnerships for Kazakhstan
The Republic of Kazakhstan has revealed plans to launch a central bank digital currency. The National Bank of Kazakhstan (NBK) kick-started the project by releasing the digital tenge report in early May 2021.
Binur Zhalenov, chairman of the board of the payments and fintech research and development centre of NBK, said, “The NBK has started a proof-of-concept that mainly aims to test the basic functionality of the ledger for local retail payments and will serve as a basic infrastructure for a potential digital tenge platform”.
Once ready, the digital tenge is expected to be accessed through an open platform controlled by the central bank. Users would be able to use the currency as means of payment, to carry out transactions without the interference of the state just like with the physical tenge, the country’s national currency.
Kazakhstan plans for the digital tenge
The objective for the digital tenge is co-existence with existing forms of money and payment systems. The payment market of Kazakhstan is fragmented with 17 different systems that facilitate national and international transfers.
The digital tenge is expected to provide several benefits. It could advance Kazakhstan’s monitoring of money flows. The country receives significant foreign currency inflows due to its access to natural resources such as oil and gas. “It could make cross-border payments cost-efficient and accessible,” said Zhalenov. Besides, Kazakhstan expects the digital currency initiative to provide effective means in the future to manage trade imbalances.
The global competitiveness report 2019 published by the World Economic Forum ranked Kazakhstan 55th among 141 countries in its ability to ensure stable economic growth. As highlighted in the 2025 Strategic Development Plan, the move towards digital banking could also reduce the size of the country’s shadow economy.
Zhalenov added, “The digital tenge will also enhance further spread of non-cash payments in all regions of Kazakhstan and increase financial inclusion”.
The support for the digital tenge project is foremost outlined in the national strategic directives for the 2020s. Notable among these are the initiatives on development of electronic commerce and provision of process automation that can be found in the 2025 strategic development plan. Moreover, the Monetary Policy Strategy 2030 addresses the cryptocurrency priorities.
Digital currency initiatives
Several of the related objectives stated in the strategic documents are built on the Astana International Financial Centre (AIFC) framework which targets five activities, namely accounting, arbitration, financial analytics, fintech, and payment systems. Accordingly, the country aims to prioritise the use of blockchain and promote the transition to online banking and non-cash payments.
Next, the NBK plans for 2021 is to launch a retail tokenised two-tier CBDC in a pilot mode based on the distributed ledger technology (DLT). In the meantime, the NBK has started a public consultation to conduct risk assessments and discussions on several important considerations including emission and distribution, technology choices, and impact on several areas, such as monetary policy, financial stability, and the payment service market. Alikhan Smailov, the first deputy prime minister of the Republic of Kazakhstan, said, “All proposals will be systematised and become the basis for development of crypto-industry and blockchain technology”.
Benefits of partnerships for Kazakhstan
Kazakhstan has initiated several collaborations and partnerships to kick-start and maintain its course. In May 2021, the NBK announced it had started working with the Bank of International Settlements (BIS).
“The BIS has built an effective platform for cooperation between central banks all over the world. BIS is one of the key trendsetters of CBDC research,” said Zhalenov.
Several other initiatives including Project Helvetia, Project Aurum, and Multi-CBDC bridge are underway at research level.
The global race for CBDC needs more participants. The case of Kazakhstan presents at least two strategies to kick-start and develop digital currency initiatives.
Through collaborations with important institutions such as the BIS, Kazakhstan can ease its access to relevant blockchain technologies, and overcome knowledge barriers regarding CBDC design which could be important for the planned pilot.
“BIS ensures diversity of views regarding future perspectives that CBDC entails for the economy, which is crucial for development of timely and appropriate research to be done in many countries,” stated Zhalenov.
fiat currency, financial regulation, digital payments
by : on 2021-06-18 22:07:00
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