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.

The main goals of the pilot project in 2021 were to test the viability of the concept of the digital tenge through experimental confirmation of the technological feasibility of the retail platform based on distributed ledger technology. It also aimed to define the key parameters of the central bank’s model for Kazakhstan in collaboration with all stakeholders.

Within the pilot project, basic scenarios of the life cycle of the digital tenge were implemented – from issuance and distribution to purchases and transfers using the digital tenge. The project confirmed hypotheses about the technological feasibility of the digital tenge concept, identified a list of issues and tasks for further refinement, and developed a preliminary model for assessing the impact of the digital tenge on the economy, financial stability, and monetary policy, as well as possible approaches to regulation.

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.

RESULTS OF THE RESEARCH IN 2022

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.

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.

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.

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

IMPLEMENTATION OF PHASE I IN 2023

In the previous stages of the project, the National Bank of Kazakhstan (NBRK) focused on researching only the retail central bank digital currency (CBDC). Over the past few months, discussions with stakeholders and the market have led to new initiatives for the use of wholesale CBDC, including securities settlements, scenarios involving stablecoins, cross-border and social payments in addition to the retail narrative with which the NBRK began this journey. The exploration of general-purpose CBDC requires addressing issues of widespread use by all users, as well as advanced scenarios for testing new hypotheses and ideas for both wholesale and retail CBDC. In this context, two platforms for CBDC are planned for development in 2023 – an industrial one and an experimental one (also known as the R&D – research and development – contour). All results of the work will be published in the final report in December 2023, determining the optimal architectural paths for the development of the target CBDC architecture.

Further steps:

ROADMAP FOR DIGITAL TENGE IN 2023-2025.