Kazakhstan central bank reviews digital tenge pilot successes, next steps
The Kazakhstan central bank has concluded a successful month-long pilot project of its digital currency, the digital tenge. During the pilot, the digital tenge was utilized in various ways, including providing free school lunches to children and tokenizing gold. The results have been positive, with the digital tenge demonstrating high levels of interoperability, enabling seamless transactions both within and outside of Kazakhstan. Looking ahead to 2024, the central bank has outlined a series of improvements and expansions for the digital tenge, with goals such as increasing intermediary banks, developing decentralized finance applications, and carrying out offline transactions. This article explores the achievements of the pilot project and outlines the next steps for the digital tenge.
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Pilot Successes
Digital Tenge Used for Free School Lunches
During the pilot project, the digital tenge showcased its versatility by being used for free school lunches. In Almaty, schoolchildren were able to use the local Onay card, originally designed for the transit system, to purchase their meals. Kazpost, the postal system operator, acted as the intermediary for these transactions. Plastic cards, issued by four local banks in collaboration with Visa and Mastercard, were given to members of focus groups. These cards allowed users to make purchases both in-person and online, as well as withdraw cash from ATMs. The participating merchants had the option to accept digital tenge or convert them to “non-cash” tenge. This successful implementation demonstrated the potential of the digital tenge in everyday transactions.
Interoperability with Existing Systems
A significant achievement of the digital tenge pilot project was its interoperability with existing point-of-sale and QR systems. By converting digital tenge, they were seamlessly integrated into the existing systems, allowing for a smooth user experience. This level of interoperability is unprecedented for a central bank digital currency (CBDC), marking a significant milestone in the development of digital currencies. The successful integration with established payment systems opens up new possibilities for the digital tenge in various sectors of the economy.
Cross-Border Payments via SWIFT
Another notable accomplishment of the pilot project was the successful execution of cross-border payments using the Society for Worldwide Interbank Financial Telecommunication (SWIFT) network. By leveraging the digital tenge, individuals and businesses were able to make cross-border transactions efficiently and securely. This development has the potential to streamline international trade and foster economic growth by reducing the barriers and costs associated with cross-border payments. The successful implementation of cross-border payments via SWIFT demonstrates the digital tenge’s potential in facilitating global financial transactions.
CBDC-Backed Stablecoins on Binance and KASE Platforms
The pilot project also involved issuing CBDC-backed stablecoins on prominent cryptocurrency platforms such as Binance and KASE. This initiative aimed to explore the use of digital tenges in the context of stablecoins, which are cryptocurrencies pegged to a stable asset such as a fiat currency. By backing stablecoins with the digital tenge, the Kazakhstan central bank sought to facilitate more secure and stable transactions within the cryptocurrency ecosystem. The successful issuance of CBDC-backed stablecoins on these platforms opens up new possibilities for digital tenge integration in the wider cryptocurrency market.
Tokenizing Gold with Digital Tenge
Tokenization refers to the process of converting real-world assets, such as gold, into digital tokens that can be traded on blockchain platforms. In the pilot project, the digital tenge was used to tokenize gold, enabling individuals to digitally represent and trade gold assets. This groundbreaking initiative showcases the potential of the digital tenge in revolutionizing traditional asset markets. By tokenizing gold with the digital tenge, Kazakhstan aims to provide individuals with greater accessibility and liquidity in investing and trading precious metals.
Value-Added Tax Collection with Smart Contracts
The pilot project also tested the use of smart contracts for value-added tax (VAT) collection. Smart contracts are self-executing contracts with the terms of the agreement directly written into code. By utilizing smart contracts, the digital tenge facilitated automated and secure VAT collection processes. This innovative approach to tax collection is expected to streamline administrative procedures, reduce costs, and minimize errors. The successful implementation of VAT collection with smart contracts demonstrates the potential of the digital tenge in enhancing efficiency across various sectors of the economy.
Trial of Move-to-Earn App
As part of the pilot project, a move-to-earn app was trialed to explore the concept of incentivizing physical activity through digital tokens. The app allowed users to earn digital tenge by completing specific physical activities or achieving fitness goals. This innovative approach aims to promote a healthier lifestyle while showcasing the potential of the digital tenge in incentivizing desired behaviors. The successful trial of the move-to-earn app demonstrates the versatility of the digital tenge in creating innovative solutions that go beyond traditional financial transactions.
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Next Steps for 2024
Increasing Number of Intermediary Banks
In 2024, the National Bank of Kazakhstan and the National Payment Corporation of Kazakhstan have set a goal to increase the number of intermediary banks. By expanding the network of intermediary banks, the accessibility and reach of the digital tenge will be enhanced. This strategic move is expected to promote widespread adoption of the digital currency and further integrate it into the country’s financial infrastructure.
Developing Decentralized Finance Applications
Another key focus for 2024 is the development of decentralized finance (DeFi) applications. DeFi refers to a financial system built on blockchain technology that aims to provide open, accessible, and transparent financial services to individuals worldwide. By leveraging the capabilities of the digital tenge, Kazakhstan aims to foster the growth of DeFi applications within its financial ecosystem. This development has the potential to revolutionize financial services by eliminating intermediaries and facilitating peer-to-peer transactions.
Scaling Offline Transactions
Increased financial inclusion is a crucial goal for Kazakhstan, particularly in regions with limited internet connectivity. In 2024, the National Bank of Kazakhstan and the National Payment Corporation of Kazakhstan aim to scale offline transactions to address this issue. By enabling offline transactions, individuals in regions with limited internet connectivity will have access to digital tenge transactions, thereby promoting greater financial inclusion and economic participation.
Increasing Participation in Cross-Border Payment Projects
Building on the success of cross-border payments via SWIFT, Kazakhstan aims to increase its participation in cross-border payment projects. By expanding its engagement in international payment initiatives, Kazakhstan seeks to establish itself as a key player in global financial transactions. This increased participation will not only benefit the national economy but will also position the digital tenge as a viable digital currency for cross-border trade and investment.
Implementing Regulatory and Legislative Goals
In parallel with its technical advancements, Kazakhstan aims to implement regulatory and legislative goals to ensure the effective and secure deployment of the digital tenge. By establishing clear regulations and legal frameworks, the country aims to foster trust and confidence in the digital currency ecosystem. The implementation of regulatory and legislative goals will also contribute to the prevention of financial crimes and the protection of user rights and privacy.
Enhancing Digital Tenge Security
As digital currencies become more prevalent, ensuring robust security measures is imperative. In 2024, the National Bank of Kazakhstan and the National Payment Corporation of Kazakhstan will prioritize enhancing the security of the digital tenge. This includes implementing advanced encryption protocols, cybersecurity measures, and continuous monitoring systems to protect against potential threats and safeguard user assets. By prioritizing security, Kazakhstan aims to instill trust in the digital tenge and position it as a reliable and secure form of digital currency.
Improving Processing Speed
Efficient transaction processing is essential for the widespread adoption and usability of the digital tenge. In 2024, Kazakhstan aims to improve the processing speed of digital tenge transactions. This will involve optimizing the underlying technology infrastructure, leveraging innovative solutions, and collaborating with industry stakeholders to enhance transaction speeds. Improving processing speed will enhance user experience and ensure that the digital tenge remains a competitive and efficient digital currency.
Financial Inclusion
Offline Transactions to Increase Access
Limited internet connectivity in certain regions presents a challenge to financial inclusion. To overcome this barrier, Kazakhstan plans to scale offline transactions, enabling individuals in these regions to access and participate in digital tenge transactions. By leveraging offline transaction capabilities, individuals without consistent internet access will have the opportunity to engage in digital transactions, promoting financial inclusion and economic empowerment.
Limited Internet Connectivity in Some Regions
While Kazakhstan has made significant strides in digital transformation, limited internet connectivity in certain regions hinders widespread adoption of digital payment systems. To address this issue, the National Bank of Kazakhstan and the National Payment Corporation of Kazakhstan will work towards improving internet infrastructure and expanding connectivity in these underserved areas. By enhancing internet access, the barriers to digital financial services will be reduced, paving the way for greater financial inclusion and economic development.
Surveillance Concerns
Assurances from NPCK CEO
In response to concerns about user privacy and surveillance, the CEO of the National Payment Corporation of Kazakhstan, Binur Zhalenov, has given assurances that the digital tenge will not be used for surveillance purposes. In an interview, Zhalenov emphasized the commitment to user privacy and stated that the digital tenge is designed to enable secure and private transactions. These assurances seek to address potential privacy concerns and foster trust in the digital tenge ecosystem.
Commitment to User Privacy
Privacy is a fundamental aspect of any digital currency ecosystem. To ensure user privacy, the National Payment Corporation of Kazakhstan and the National Bank of Kazakhstan are committed to implementing robust privacy measures in the digital tenge infrastructure. These measures include advanced encryption techniques, strict data protection protocols, and compliance with relevant privacy regulations. By prioritizing user privacy, Kazakhstan aims to maintain the integrity and trustworthiness of the digital tenge system.
Intermediary Banks
The increasing number of intermediary banks is a crucial step in expanding the reach and accessibility of the digital tenge. Intermediary banks act as intermediaries between the central bank and commercial banks, facilitating the flow of digital currency transactions. By increasing the number of intermediary banks, Kazakhstan aims to create a robust and efficient digital tenge ecosystem that can support a wide range of financial services and transactions. This expansion will enable individuals and businesses to seamlessly interact with the digital tenge, thereby promoting its adoption and usability.
Decentralized Finance Applications
The development of decentralized finance applications is an exciting prospect for the digital tenge. DeFi applications aim to revolutionize traditional financial services by leveraging blockchain technology and smart contracts. By developing DeFi applications, Kazakhstan can provide individuals and businesses with access to innovative and inclusive financial services. These applications can include lending platforms, decentralized exchanges, and asset management solutions, among others. Through the integration of the digital tenge, Kazakhstan can position itself as a leader in the global DeFi ecosystem.
Offline Transactions
Offline transactions are a key component of promoting financial inclusion and accessibility to the digital tenge. By enabling offline transactions, individuals in regions with limited internet connectivity can still participate in digital currency transactions. The National Bank of Kazakhstan and the National Payment Corporation of Kazakhstan will work towards scaling offline transactions, ensuring that individuals in underserved areas have equal access to digital tenge transactions. This initiative will contribute to reducing the digital divide and promoting economic empowerment for all.
Cross-Border Payment Projects
Expanding participation in cross-border payment projects is a strategic move for Kazakhstan to facilitate international trade and investment. By actively engaging in cross-border payment initiatives, Kazakhstan can establish itself as a key player in the global financial landscape. The integration of the digital tenge in cross-border transactions offers numerous benefits, including faster settlement times, reduced costs, and increased transparency. Kazakhstan’s participation in cross-border payment projects will drive economic growth and position the digital tenge as a viable currency for international transactions.
Regulatory and Legislative Goals
To ensure the effective deployment and adoption of the digital tenge, regulatory and legislative goals need to be implemented. Clear and comprehensive regulations will provide a solid foundation for the digital tenge ecosystem, ensuring compliance, preventing financial crimes, and protecting user rights. The National Bank of Kazakhstan and the National Payment Corporation of Kazakhstan will work closely with relevant authorities to establish the necessary regulatory frameworks, fostering trust and confidence in the digital tenge.
Processing Speed
Improving processing speed is crucial for enhancing the usability and efficiency of the digital tenge. By optimizing the underlying technology infrastructure and collaborating with industry stakeholders, Kazakhstan aims to enhance transaction speeds. Faster transaction processing will reduce wait times, improve user experience, and strengthen the competitiveness of the digital tenge. The National Bank of Kazakhstan and the National Payment Corporation of Kazakhstan are committed to continuous innovation and improvement to ensure that the digital tenge remains a fast and reliable digital currency option.
In conclusion, the pilot project of the digital tenge has demonstrated its successes and paved the way for further development. The digital tenge’s use in various real-world scenarios, such as free school lunches and gold tokenization, showcases its versatility and potential. The next steps for 2024 focus on increasing intermediary banks, developing decentralized finance applications, scaling offline transactions, and improving cross-border payment projects. Concerns regarding surveillance and privacy have been addressed, reaffirming the commitment to user privacy. By prioritizing financial inclusion, Kazakhstan aims to bridge the digital divide and provide equal access to the digital tenge. Through regulatory implementation, increased security, and improved processing speed, Kazakhstan aims to establish the digital tenge as a reliable, secure, and efficient digital currency. The future looks promising for the digital tenge and its role in reshaping the financial landscape of Kazakhstan.