Kazakhstan’s central bank, the National Bank of Kazakhstan (NBK), recently published a discussion paper on its Central Bank Digital Currency (CBDC), digital Tenge, for retail use. The NBK is proposing to launch a pilot program to test its CBDC in the second half of 2021 and there is a specific model/platform proposed for the implementation of the program. Overall this model provides for interaction with private intermediaries (e.g., banks and payment service providers) representing an opportunity for intermediaries to collaborate with the NBK and innovate.
Based on the results of its pilot program, the NBK will make a decision on whether to introduce a CBDC on a full-scale basis. In the interim, the NBK invites feedback from interested parties on the benefits and risks of doing so.
- On 5 May 2021, the NBK published a discussion paper regarding the possible introduction of a CBDC for retail use in Kazakhstan.1 The NBK emphasized that it has not reached a decision yet on whether to introduce a CBDC, so the paper is intended to encourage further discussion and research.
- The paper follows the Strategy for the Development of the Payments Sector adopted by the NBK in November 2020.2 The Strategy calls for the creation of a new infrastructure in Kazakhstan – the National Payment System – with a view of making the existing payment services more efficient and cheaper. Thus, if introduced, the CBDC would become an additional tool available as part of the new infrastructure currently being developed by the NBK according to the Strategy.
2. The NBK’s approach to the CBDC
- The NBK considers that any CBDC in Kazakhstan would be a new form of money issued by the NBK available for use for businesses and wider public. It would exist alongside cash and bank deposits, rather than replacing them.
- The discussion paper highlights certain potential advantages of introducing the CBDC, including the following:
- Competition and innovation in the financial market. The proposed model for the CBDC provides for the private-sector involvement.3 The presence of private intermediaries and service providers (e.g., banks and payment service providers) would support competition and innovation, opening new opportunities for the fintech sector.
- Financial inclusion. The NBK believes that the CBDC could become a strong instrument of financial inclusion enabling certain less affluent, or elderly or rural, communities to benefit from the current technological advances.
- Efficiency in payments and resilience. CDBC could enhance efficiency, speed and safety of payments in Kazakhstan. In the long-term perspective, a CBDC could make cheaper and faster cross-border payments as well.4 Further, the paper flags that in case of private market failures, the CDBC could ensure the resilience and stability of the National Payment System.
- The NBK excludes the possibility of introducing interest-bearing CBDC so that individuals and businesses have less incentive to shift their values from bank deposits to the CBDC.
3. Pilot program – key parameters
- The pilot program is based on a two-tier architecture providing for a private sector involvement as described in Part 2 (Principles and approaches for the introduction of digital currency in Kazakhstan) of the discussion paper. At a high-level, the NBK’s paper provides that:
- the NBK would provide a core ledger which is a technology platform recording the CBDC value and processing payments using the CBDC – the ledger can, but does not need to be, based on the distributed ledger technology (DLT), with the NBK retaining ultimate control for the issuance of the CBDC; and
- private intermediaries (e.g., banks and payment service providers) would handle interactions with retail customers offering additional functionality and innovation.
- The NBK is concerned about the risks presented by the CBDC, including risks associated with cybersecurity, data privacy and AML/KYC. As a result, the discussion paper flags that those areas will be closely scrutinized in the process of implementation of the pilot program.
The NBK has invited feedback and views from financial institutions, the payments industry and other interested parties on the impact of introducing the retail CBDC in Kazakhstan and its design. The discussion paper does not provide for any specific deadline for comments, but it has been announced that the pilot program will start in the second half of 2021.5