In recent years, the NBK conducted a series of studies on the benefits and macroeconomic and financial stability implications of, and regulatory barriers to, the introduction of the digital tenge (DT). An initial launch of the DT took place on November 15, 2023, with off-line and cross border transactions planned by 2025. Technical challenges and uncertainties remain in several areas. These include the desired level of anonymity, the feasibility of unlimited off-line transactions and low-cost payments, the needed legal and regulatory amendments, and additional analyses of the DT’s macroeconomic and financial stability implications.

Abstract

In recent years, the NBK conducted a series of studies on the benefits and macroeconomic and financial stability implications of, and regulatory barriers to, the introduction of the digital tenge (DT). An initial launch of the DT took place on November 15, 2023, with off-line and cross border transactions planned by 2025. Technical challenges and uncertainties remain in several areas. These include the desired level of anonymity, the feasibility of unlimited off-line transactions and low-cost payments, the needed legal and regulatory amendments, and additional analyses of the DT’s macroeconomic and financial stability implications.

The Kazakhstan Digital Tenge Project1

In recent years, the NBK conducted a series of studies on the benefits and macroeconomic and financial stability implications of, and regulatory barriers to, the introduction of the digital tenge (DT). An initial launch of the DT took place on November 15, 2023, with off-line and cross border transactions planned by 2025. Technical challenges and uncertainties remain in several areas. These include the desired level of anonymity, the feasibility of unlimited off-line transactions and low-cost payments, the needed legal and regulatory amendments, and additional analyses of the DT’s macroeconomic and financial stability implications.

1. The NBK has been exploring the feasibility of issuing a digital tenge (DT) since 2021.2 As part of its decision-making framework for implementation,3 the NBK is currently conducting a technical project to evaluate the feasibility of alternative payment scenarios and design choices. The DT would be another liability of the NBK coexisting with existing cash and non-cash money.

2. The DT is expected to complement existing national and private payment platforms. The Interbank System of Money Transfer is a real time gross settlement system for large payments managed by the NBK and supported by five systemically important payment system providers. The Interbank Clearing System is a net settlement system for small payments also managed by the NBK. In addition, there are about thirty private platforms managed by second-tier banks (STBs) where electronic money is the liability of the private sector providers. The DT would complement all these systems with additional functionality in terms of accessibility, variable and controllable anonymity, digital bearer instrument, independence, operational efficiency, and programmability.

3. Other stated objectives of the DT are to foster competition among STBs; promote financial innovation; develop a wider set of payment services through remote biometric identification, programmability, and smart contracts; and increase financial inclusion and penetration of non-cash payments due to the possibility of offline payments (like cash).

4. The DT is still in its testing phase. The 2021 project tested key characteristics of the DT as a retail currency, token based, operating on a distributed ledger technology, and distributed following a two-tiered, hybrid operational model.4 In this model, the NBK issues tokens to STBs in exchange of reserves at the NBK, monitors the security of the system, ensures the connection of participants, is responsible for the distributed ledger, keeps a record of transactions and the balance sheets of both STBs and their clients, discharges notary node responsibilities, and can halt, transfer balances, and restart the payment system in the event of an intermediary failure. STBs provide retail payment services to their clients by distributing the DT through digital account wallets and are responsible for implementing AML/CFT preventive measures, including customer due diligence.

5. The full implementation of the DT is expected by 2025. An initial launch of the DT took place in Almaty on November 15, 2023, for online-only transactions by residents. Off-line and cross border transactions are planned to be available by 2025. The authorities expect a take up of the DT of about 5–10 percent of GDP. In the meantime, the authorities plan to evaluate more scenarios including the integration with international payment systems and other CBDCs, increasing the efficiency of settlements, integrating the DT platform with the existing payment infrastructure (including wholesale use cases), and conducting other tests with real customers and merchants in an open environment.5

6. Uncertainties remain in relation to several design choices and preconditions for the DT launch. For instance, the feasibility of safe and unlimited off-line transactions has not been proven and the introduction of quantitative limits for offline transactions may be needed to limit fraud risks. Similarly, the feasibility of unlimited low-cost payments has not been established, as periodic reissuance of tokens may be required. Design choices on anonymity, privacy, and consumer protection are still under consideration. Finally, several laws will need to be updated to accommodate CBDC issuance, including laws on banking activities, AML/CFT, data protection, taxation, and the Criminal Code.6

7. The NBK assessed the macro implications of the DT through a series of studies.7 These studies indicate that: (i) DT demand is limited and estimated at about 10–25 percent of customers liquid assets; (ii) a nonremunerated DT would reduce demand to 5–6 percent of GDP; (iii) the DT introduction would not increase the monetary base but only change the money supply structure; (iv) the potential crowding out of bank deposits can be mitigated through quantitative restrictions on the conversions of current accounts in DT wallets or other price measures; and (v) the interest channel of monetary policy transmission would be strengthened due to the complementarity of DT and cash.

8. Some of the macro-financial implications of the DT are likely to become evident only over time and further analysis is needed. The NBK research focuses on specific design aspects and the limited scope of the 2023 technical project, but the introduction of a CBDC can have a broad range of macroeconomic and financial stability implications.8 Given that existing CBDCs have yet to establish user demand at scale, an empirical assessment of such implications is currently largely missing. The NBK could nonetheless consider additional user demand scenarios under both steady-state and stress conditions (e.g., shocks to confidence in the banking system triggering flight to safety).

1

Prepared by Gregorio Impavido, with the benefit of comments in particular from Ashley Lanquist, Manisha Patel, and Kateryna Zhabska (IMF).

2

See Digital Tenge Public Discussion Report (May 2021) https://www.nationalbank.kz/file/download/67111

3

See Decision-Making Framework for Digital Tenge Issuance. https://www.nationalbank.kz/file/download/78802

4

See “NBK (2021) Report on the Results of the Digital Tenge Technical Project (White Paper).” https://www.nationalbank.kz/file/download/72203

5

See “NBK (2023) Status report on the implementation of the national digital currency” https://nationalbank.kz/file/download/95205.

6

At a minimum, the NBK Act and/or the civil code would need to be amended to authorize the NBK to issue the DT and to ensure its full convertibility with other forms of payment. See Bossu W., M. Itatani, C. Margulis, A. Rossi, H. Weenink, and A. Yoshinaga (2020) Legal Aspects of CBDC: Central Bank and Monetary Law Considerations. IMF Working Paper WP/20/254.

7

See “NAC (2022) Report on CBDC research. NAC Analytica Economic Modelling Center” https://nacanalytica.com/en/

8

See for example “Infante S., K. Kim, A. Orlik, A.F. Silva, and R.J. Tetlow (2022) The Macroeconomic Implications of CBDC: A Review of the Literature. Federal Reserve Board Finance and Economics Discussion Series 2022–076.”

Republic of Kazakhstan: Selected Issues
Author: International Monetary Fund. Middle East and Central Asia Dept.