Kyrgyzstan Takes a Bold Leap with Digital Som: The Central Bank Digital Currency
Kyrgyzstan is making headlines in the financial world as it lays the groundwork for its very own central bank digital currency (CBDC), aptly named the digital som. In a groundbreaking development, the Parliament has approved a draft law during its first reading that establishes the framework and legal status for this innovative monetary system.
As reported by Trend, this significant legislative move was initiated by the Cabinet of Ministers and aims to set the stage for one of the country’s most ambitious financial undertakings. Once fully operational, the digital som is poised to become Kyrgyzstan’s national currency, recognized as legal tender across the nation.
Oversight by the National Bank of Kyrgyzstan
The National Bank of Kyrgyzstan will take charge of the digital som’s issuance, accounting, and distribution via a centralized platform. This means that the central bank will hold exclusive rights over the creation and management of the currency, ensuring that it is secure and efficient.
Testing for the digital som’s prototype is expected to kick off in early 2025, with the full integration into the country’s financial ecosystem slated for January 2027. This timeline sets an exciting path forward for the digital som as Kyrgyzstan embarks on its journey towards digital finance.
Kyrgyzstan’s Unique Approach to CBDCs
Unlike many contemporary CBDC initiatives that leverage blockchain technology, Kyrgyzstan is opting for a centralized management model under the auspices of the National Bank. While the digital som will incorporate features like smart contracts, it will steer clear of heavy reliance on blockchain systems, a decision shaped by Kyrgyzstan’s unique financial and technological landscape.
A key objective of the digital som’s platform is to facilitate both online and offline transactions—a crucial advantage in Kyrgyzstan, where internet access can often be erratic. For transactions performed offline, data will be securely stored on users’ devices and synchronized with the central platform once internet connectivity is restored. This aspect has raised technical considerations, echoing similar debates among central banks globally.
Accessibility and Financial Inclusion
The proposed CBDC system aims to enhance accessibility for all citizens. It will feature digital accounts for participants and user-friendly digital wallets linked to banking applications and financial service providers. This will effectively bridge the gap between digital financial solutions and traditional monetary methods, catering to a wider audience.
The Path to Implementation: Consultations and Security
Public consultations on the digital som commenced in August, addressing vital constitutional amendments necessary for its integration. Mels Attokurov, the Deputy Chairman of the National Bank, highlighted the security advantages the digital system presents, framing it as a pivotal tool for modernizing Kyrgyzstan’s financial institutions while safeguarding stability.
The government sees the digital som as a significant stride towards enhancing financial inclusion, particularly for those in remote regions of the country, providing secure and efficient payment options aligned with the emerging global trends in digital finance.
Looking Ahead: The Future of the Digital Som
Following extensive prototype testing and community feedback, the National Bank is expected to make a decision on the full-scale deployment of the digital som by the end of 2026. Should it succeed, Kyrgyzstan will position itself as a leader in adopting digital currencies in Central Asia, inspiring other nations in the region.
A Global Context: The CBDC Race
Kyrgyzstan’s ambition is not an isolated case. According to the Atlantic Council’s latest report, a staggering 134 countries, representing 98% of the global economy, are actively exploring the implementation of CBDCs—up from just 35 in 2020. Out of these, 66 nations have made significant progress, with countries like the Bahamas, Jamaica, and Nigeria leading the charge with successful CBDC launches and expansions of their retail applications.
Furthermore, 44 countries, including Australia, Indonesia, Singapore, and Malaysia, are currently running CBDC pilot programs. This worldwide movement seeks to address the diminishing use of cash and the growing competition posed by cryptocurrencies such as Bitcoin.
The digital yuan (e-CNY) stands out as a major global initiative, boasting nearly $986 billion in transactions across 17 regions—a notable jump from $253 billion the previous year—spanning crucial sectors like education and tourism. As the race for CBDCs heats up, all eyes are on Kyrgyzstan and its pioneering digital som initiative.