Digital Tenge

In 2021, the National Bank of the Republic of Kazakhstan, in close collaboration with financial market participants, the expert community, and international partners, implemented the pilot project “Digital Tenge”.

 

MAIN STAGES OF THE PILOT PROJECT IN 2021

 

  1. In May, a consultative report was published for public discussions.
  2. From May to December, a series of specialized meetings and discussions were held with market participants, the expert community, government agencies, as well as international partners.
  3. In June, the pilot project was launched to assess the technical feasibility of the digital tenge. Within this framework, a prototype platform was implemented, and several scenarios were tested with the involvement of external participants, including second-tier banks.
  4. In September, surveys and interviews were conducted with market participants to clarify priorities and needs in the development of new payment instruments.
  5. In November, preliminary results of the pilot project were presented during the IX Congress of Financiers of Kazakhstan.
  6. In December, a report on the results of the pilot project was prepared.

In 2021, the pilot project’s main goals were to test the viability of the Digital Tenge’s concept via experiments focused on technological feasibility of the retail platform based on distributed ledger technology. In addition to that, defining the key parameters of the central bank digital currency model for Kazakhstan in collaboration with all stakeholders was considered as a major goal.

Within the pilot project, basic scenarios of the Digital Tenge’s lifecycle were implemented including issuance, distribution, purchases and transfers. 

The project results confirmed hypotheses about the technological feasibility of the Digital Tenge concept, identified a list of issues and tasks for further improvement, and developed a preliminary model for assessing the impact of the digital tenge on the economy, financial stability, and monetary policy. Preliminary study of required regulatory framework was also conducted.

Detailed description of the works conducted in 2021 is provided in the Digital Tenge project report 2021. 

 

DEVELOPMENT OF THE DECISION-MAKING MODEL IN 2022

 

In 2022, the National Bank continued the exploration of the benefits and costs associated with the potential implementation of the digital tenge. Efforts were made to expand the technological functionality of the platform, and quantitative economic studies were conducted.
To actively involve financial market participants and other stakeholders, a collaborative platform called Digital Tenge Hub was launched in June 2022. This platform brings together all interested parties for joint research on the implementation of the national digital currency in Kazakhstan.

In response to the directive from the head of the state, the National Bank developed a decision-making model regarding the necessity of introducing the digital tenge. The model aims to conduct a comprehensive study, determining the benefits and costs of potential implementation of the national digital currency.

The model takes into account tools recommended by international organizations and approaches used by foreign regulators. It includes research on the assessment of the technological feasibility of the digital tenge design, potential economic benefits and costs, regulatory possibilities, and the potential development of the ecosystem.

Within the structure of the model, aspects of central bank digital currency (CBDC) implementation are explored using various tools for evaluating innovative projects: experimental assessment through a pilot project, economic modeling, series of discussions with the market, analysis of results from other projects, and so on.

These approaches are directed towards creating a detailed logical structure with justifications for various decisions, verifying their alignment with key principles (particularly the principles of market orientation and collaboration among business participants within the proposed ecosystem). Additionally, the chosen approaches are tested for viability in terms of technology, economics, participant interaction, and regulation.

The structure of the model logically groups analysis questions and criteria into four blocks:

  • Key parameters defining the design architecture of the digital tenge.
  • Determination of the digital tenge design considering architecture and economic issues.
  • Evaluation of the viability of the chosen digital tenge design.
  • Analysis of conceptual operational and regulatory models.

The decision-making framework is available here.

 

RESULTS OF THE RESEARCH IN 2022

 

             1. In collaboration with market participants, successful testing of the digital tenge platform with real consumers and trade-service enterprises was conducted. The entire life cycle of the digital tenge was tested, including programmability and demonstration of the chain of offline transactions.

             2. Conclusions were drawn from economic modeling, indicating no risks to monetary policy, financial stability, and the overall economy. A representative survey showed that 60% of respondents expressed readiness to use the digital tenge.

             3. The collaborative platform Digital Tenge Hub was launched, leading to a series of discussions and design sessions with all stakeholders. The Digital Tenge Ideathon was also conducted.

             4. An analysis of regulatory aspects for implementing the digital tenge was carried out, and approaches for developing the ecosystem were formulated.

The results of the study on the need for the Digital Tenge implementation are included in the Digital Tenge project report 2022.

 

IMPLEMENTATION OF PHASE-I IN 2023

 

The first phase of implementation was completed in 2023 – the Digital Tenge was launched into limited production mode by the “National Payment Corporation” JSC together with STBs and international payment systems.

In 2023, a pilot project called “Digital vouchers” for free school meals in one of the schools in Almaty was implemented in cooperation with the Almaty City Akimat and Kazpost JSC. In addition, together with Visa, Mastercard and 4 STBs (Halyk Bank, Altyn Bank, Bank CenterCredit and Eurasian Bank), the world’s first bank cards with a link to a digital account in Digital Tenge’s were launched.

 

In a separate R&D environment, innovative scenarios from market participants, cross-border payments and the issuance of Digital Tenge backed stablecoins were also tested.

 

The two pilot projects demonstrated the entire life cycle of the Digital Tenge from issuance, distribution, spending, execution of a trigger payment to redemption.

The results demonstrated the great potential of CBDC in general and the Digital Tenge in particular as an innovative payment instrument with fundamentally new properties.

The results of the first phase of the Digital Tenge implementation in 2023 are available here.

 

IMPLEMENTATION OF PHASE-II IN 2024

 

As part of the second phase of implementation of the national digital currency, the Digital Tenge’s programmability was tested via the projects focused on enhancing public procurement.  Therefore, works on expanding the Digital Tenge platform’s functionality and improving its functional and non-functional characteristics have been completed in 2024.

 

Currently, the Digital Tenge project is focused on further development of the platform’s functionality by realizing new usage scenarios for wholesale and retail payments, researching potential areas of application, expanding the number of participants and improving the technical parameters of the platform.

 

By the end of 2025, the decision on timelines of launching industrial-grade platform will be made.