Kyrgyzstan is preparing to introduce a digital currency: what does it mean for the country?
The National Bank of Kyrgyzstan Prepares to Introduce a Digital Currency
The National Bank of Kyrgyzstan (NBKR) has announced the development of a draft law aimed at introducing a digital currency in the form of a Central Bank Digital Currency (CBDC). If adopted, the new regulations will bring significant changes both to the Constitutional Law of Kyrgyzstan regarding the activities of the NBKR and to the Law on the Payment System of Kyrgyzstan.
Planned Changes and Actions
According to the plans of NBKR, the state digital currency is set to be introduced in Kyrgyzstan. In March, twelve companies submitted proposals to test a prototype of the digital som in a sandbox environment. Subsequently, the NBKR project team prepared a demonstrative version of the CBDC som on blockchain, but the final choice of the technology provider has not been made yet.
As part of the project, a digital som platform is planned to be developed, with NBKR acting as the operator. The proposed digital soms would be intermediated, and NBKR would open accounts for platform participants, including banks and the State Treasury of the Ministry of Finance of Kyrgyzstan.
Functions and Use of the Digital Som
Platform participants would have the ability to create wallets for different users, including individuals, legal entities, and individual entrepreneurs. The intermediary bank would verify user transactions and send instructions for their execution to the operator (NBKR).
The digital soms would function as a medium of exchange, allowing users to convert them into cashless funds through a dedicated application. Additionally, there are plans to consider the ability to conduct offline transactions and to issue detailed rules regarding privacy, cybersecurity, and dispute resolution before the official launch of the CBDC.
Legislative Process and Public Consultations
The draft law on Kyrgyzstan’s digital currency is currently available for public consultations until September 7. If the proposed changes are accepted, they are scheduled to come into effect on January 1, 2027.
Kyrgyzstan in the Context of Cryptocurrencies
Kyrgyzstan, located in Central Asia with a population of 7.2 million inhabitants, is gaining increasing importance in the cryptocurrency industry. Due to its hydropower resources, the country has the potential to develop a cryptocurrency mining industry. In 2021, Kyrgyzstan introduced regulations regarding cryptocurrency exchanges, as part of its increasingly developed approach to a financial sector based on digital technologies.
