ASTANA – The final decision on the Digital Tenge project has not yet been made, but is expected to be announced by the end of 2022, project leader Ainur Kenzhayeva said in an interview with The Astana Times.
The project, on which the National Bank of Kazakhstan has been working with financial market participants, experts and international partners since 2021, requires a comprehensive analysis and study of all potential benefits and risks for business participants, as well as in terms of monetary policy and financial stability.
“This year we are working together with market participants on expanding the technological prototype of the platform and conducting quantitative, economic studies and assessments of regulatory aspects. All stakeholders are invited to participate in this work,” said Kenzhayeva.
The team is now working to expand the functionality of the platform. A pilot project involving real users in a limited loop is also planned for this autumn.
What is the digital tenge?
In recent years, Kazakhstan has seen a huge surge in digital technology usage, largely driven by the pandemic. In its 2021 report, the Association of Financiers of Kazakhstan points out that the volume of non-cash transactions in 2021 will reach a staggering 72.3 trillion tenge (US$154.3 billion) and 19.1 trillion tenge (US$40.8 billion). -dollars) in the first quarter of 2022.
In the midst of a rapid transformation from a cash to cashless society, Kenzhayeva noticed the growing demand for payment infrastructure security.
“Digital central bank currencies can solve current challenges by increasing security and neutrality in new digital payments, financial inclusion, innovation and system openness. Central banks exist to protect a country’s monetary and financial stability. They are a tool to achieve those goals,” she said.
In fact, Kazakhstan is not the first country to think about launching a digital currency. Corresponding the Atlantic Council trackerAt least 112 countries around the world are at various stages of exploring or adopting a digital currency.
Kenzhayeva explained that the digital currency is a “necessity of the times”.
“The digital Tenge project aims to develop and modernize the national payment system of Kazakhstan in order to provide every citizen with stable access to cheap, fast, convenient and secure payments. The introduction of digital tenge is a requirement of the times: During the pandemic, the development of non-bank platforms accelerated and the potential risks of the impact of private projects on the country’s monetary sovereignty increased,” she said.
She also noted that digital tenge aims to expand financial inclusion and democratize access to the digital payments ecosystem.
“Kazakhstan has a high proportion of the population who have little or no access to banking services. As an alternative to cash, the digital tenge offers a safe and convenient way to store and use money while providing access to modern financial services,” she said.
How does it work?
Technologically, the digital Tenge pilot project works on an open source distributed registry platform.
“This approach offers the possibility of issuing digital tenge in the format of so-called tokens. Tokens will be stored in consumers’ digital wallets, which they can access through the channels of financial market participants such as second-tier banks and payment organizations,” Kenzhayeva said.
Consumers can pay using contactless cards or QR codes with digital tokens, just like the previous means of payment. You can also pay without an internet connection.
At launch, digital currency will be used alongside cash or cashless money. It is issued only by the National Bank of Kazakhstan, which provides a guarantee that the money is protected.
“By comparison, electronic money is issued and traded within a specific e-money system and is the obligation of the owner of the system, while stablecoins and cryptocurrencies, although similar in their technological approaches, cannot perform all the functions of money as a medium Circulation, accumulation and payment, and the standard of value. They lack a single issuer that could guarantee the protection of holders’ interests, and their value is subject to fluctuations,” Kenzhayeva said.
What are the risks?
Speaking of risks, Kenzhayeva pointed to the so-called “digital flight” that implies the risks of cash outflow from commercial banks due to the potential benefits of the digital currency. “The advantages are the possibility of interest, a high level of liquidity due to the possibility of payments in offline mode without Internet access, and the security of assets through the National Bank, not through second-tier banks,” said Kenzhayeva.
Potential risks and benefits will become clearer once macro and microeconomic studies on the impact of digital tenge on the country’s economy and financial stability are completed.