The final decision on Digital Tenge is still pending in Kazakhstan, says the project leader

ASTANA – The final decision on the Digital Tenge project has not yet been made, but should be announced by the end of 2022, project leader Ainur Kenzhayeva said in an interview with The Astana Times.

Ainur Kenzhayeva leads the Digital Tenge project.

The project, which the National Bank of Kazakhstan has been working on with financial market participants, the community of experts and international partners since 2021, requires a comprehensive analysis and study of all potential benefits and risks for business participants, as well as in terms of monetary policy and financial stability.

“This year we are working with market participants to expand the technology prototype of the platform and conduct quantitative, economic and regulatory assessments. All interested parties are invited to participate in this work, “Kenzhayeva said.

The team is now working to expand the capabilities of the platform. A pilot project is also planned for this autumn with the participation of real users in a limited cycle.

What is Digital Tenge?

In recent years, Kazakhstan has seen a huge increase in the use of digital technologies, largely driven by the pandemic. In their 2021 report, the Kazakhstan Association of Financiers indicates that the volume of non-cash transactions in 2021 reached a staggering 72.3 trillion tenge ($ 154.3 billion) and 19.1 trillion. tenge ($ 40.8 billion) in the first quarter of 2022.

In the midst of a rapid transformation from a cash company to a cashless company, Kenzhayeva noticed the growing demand for the security of the payment infrastructure.

“Central bank digital currencies can solve current challenges by increasing security and neutrality in new digital payments, financial inclusion, innovation and system openness. Central banks exist to protect a country’s monetary and financial stability. They are a tool for achieving these goals, “she said.

In fact, Kazakhstan is not the first country to consider introducing a digital currency. According to the pursuer of the Atlantic Councilat least 112 countries around the world are in different stages of exploring or launching a digital currency.

Kenzhayeva explained that digital currency is a “necessity of the time”.

“The digital tenge project aims to develop and modernize Kazakhstan’s national payment system to provide stable access to cheap, fast, convenient and secure payments for every citizen. The introduction of the digital tenge is a need of the times: during the pandemic, the development of non-banking platforms accelerated and the potential risks of the impact of private projects on the country’s monetary sovereignty increased, “he said.

He also noted that the digital tenge is designed to expand financial inclusion and democratize access to the digital payments ecosystem.

“Kazakhstan has a high percentage of the population who have little or no access to banking services. As an alternative to cash, the digital tenge will provide a safe and convenient way to store and use money, while providing access to modern financial services, “she said.

How does it work?

Technologically, the tenge digital pilot runs on an open source distributed ledger platform.

“This approach offers the opportunity to issue digital tenge in the format of so-called tokens. The tokens will be stored in consumers’ digital wallets, which they will be able to access through the channels of financial market participants, such as tier two banks and payment organizations, ”Kenzhayeva said.

Consumers will be able to pay with digital tokens by analogy with current means of payment via contactless cards or QR codes. They will also be able to pay without an internet connection.

If launched, the digital currency will be used in conjunction with cash or non-cash. It will be issued only by the National Bank of Kazakhstan, which guarantees the protection of the money.

“In comparison, e-money is issued and traded within a particular e-money system and is an obligation of the system owner, while stablecoins and cryptocurrencies, although similar in their technological approaches, cannot perform all functions of money. as a means of circulation, accumulation and payment, as well as a measure of value. They have no single issuer that can guarantee the protection of the interests of the holders and their value is subject to fluctuations, “said Kenzhayeva.

What are the risks?

Speaking of risks, Kenzhayeva noted the so-called “digital leak”, which involves the risks of the outflow of funds from commercial banks due to the potential benefits of digital currency. “The advantages are the possibility of accruing interest, a high level of liquidity due to the feasibility of payments in offline mode, without access to the Internet, and the security of assets by the National Bank, not by the second tier banks”, he said. Kenzhayeva stated.

Potential risks and benefits will become more evident once macro and microeconomic studies on the impact of the digital tenge on the country’s economy and financial stability are completed.

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