A law defining the digital som, its CBDC, has been approved by Kyrgyzstan’s Parliament, opening the door for prototype testing in early 2025 and legal tender status.
Kyrgyzstan has made a big step toward the introduction of the digital som, its central bank digital currency (CBDC). A draft law outlining its structure and legal standing was approved by the Parliament in its first reading.
According to a report from Trend, the legislation was Initiated by the Cabinet of Ministers and is poised to set the groundwork for one of the nation’s most ambitious financial projects.
The digital som will serve as Kyrgyzstan’s national currency and be accepted as legal tender across the country once it is fully operational. Its distribution, accounting, and issuance will be managed by the National Bank of Kyrgyzstan via a centralized platform. The central bank will have the sole authority to issue the currency thanks to this platform, which is made to be efficient and secure.
The prototype will start testing in early 2025, and by January 2027, it should be fully integrated into the country’s financial system.
Kyrgyzstan Digital Som: A Centralized CBDC?
Kyrgyzstan’s approach places a higher priority on centralized management under the National Bank than many international CBDC initiatives that mainly rely on blockchain and distributed ledger technologies.
Though it will not explicitly rely on the blockchain, the digital som’s framework will incorporate features like smart contracts. This is primarily due to the nation’s customization to its unique technological and financial environment.
In Kyrgyzstan, where internet access can be erratic, the platform that supports the digital som seeks to facilitate both online and offline transactions.
When connectivity is restored, offline transactions will be synchronized with the platform and saved locally on user devices.
However, there are technical difficulties in implementing offline functionality, which have also been discussed globally by central banks looking into comparable CBDC features.
The proposed system will provide digital wallets for individuals and digital accounts for participants to guarantee broad accessibility. These wallets will bridge the gap between traditional monetary systems and digital innovation by being accessible through banking apps and other financial service providers.
Path to Implementation and Strategic Considerations
August saw the start of public consultations on the digital som, which included talks about the constitutional changes that would be required to make its integration easier.
Mels Attokurov, the National Bank’s deputy chairman, highlighted the security benefits of the digital system. Attokurov presents it as a means of stabilizing Kyrgyzstan’s financial system while modernizing it.
The digital som, according to the government, is a step toward increased financial inclusion, especially in rural areas.
It seeks to give all citizens safe, effective ways to make payments, in line with more general worldwide trends in digital finance.
The National Bank will make a decision regarding full-scale deployment by the end of 2026 after conducting thorough prototype testing and gathering feedback.
Kyrgyzstan’s leadership in Central Asia’s adoption of digital currencies will be cemented if the digital som is successful.
Kyrgyzstan is not the only one in the CBDC endeavor. According to the Atlantic Council’s latest report, 134 countries, representing 98% of the global economy, are actively exploring central bank digital currencies (CBDCs), a significant rise from 35 in 2020.
🌍 The CBDC race is heating up. 134 countries are now exploring digital currencies, covering nearly the entire global economy, according to @AtlanticCouncil. https://t.co/dDzG7B7Zqb
— Cryptonews.com (@cryptonews) September 17, 2024
With countries like the Bahamas, Jamaica, and Nigeria already introducing CBDCs and growing their retail applications, 66 of these have made significant strides. Furthermore, CBDC pilot programs are underway in 44 countries, including Australia, Indonesia, Singapore, and Malaysia.
The goal of this international initiative is to combat the competition from cryptocurrencies like Bitcoin and the decline in the use of cash.
China’s digital yuan, or e-CNY, is the most significant initiative, with nearly $986 billion in transactions across 17 regions, up significantly from $253 billion the year before. This initiative impacts key sectors like education and tourism.
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