Kyrgyzstan has made notable progress in its journey to establish a central bank digital currency (CBDC), known as the digital som. The nation’s Parliament recently approved a draft law in its first reading, setting the legal and operational framework for this ambitious financial project.
Legal Framework and Governance
According to a Trend report, the Cabinet of Ministers initiated this legislation to lay the foundation for the digital som. Once fully operational, the digital som will serve as Kyrgyzstan’s official currency and be accepted as legal tender across the country. The National Bank of Kyrgyzstan will manage its issuance, accounting, and distribution through a centralized platform. This platform is designed to prioritize security and efficiency, granting the central bank sole authority to issue the digital currency.
Testing and Implementation Timeline
Prototype testing for the digital som is scheduled to commence in early 2025. Following rigorous testing and system enhancements, the currency is expected to integrate into Kyrgyzstan’s financial ecosystem by January 2027.
A Centralized Approach to Digital Currency
Unlike many global CBDC initiatives that rely heavily on blockchain technology, Kyrgyzstan’s approach emphasizes centralized management under its National Bank. While the digital som will incorporate features like smart contracts, it avoids complete dependence on blockchain. This strategy aligns with the nation’s unique financial and technological environment.
Enhancing Accessibility with Online and Offline Features
The digital som’s platform will support both online and offline transactions. This functionality is crucial for Kyrgyzstan, where inconsistent internet access is a challenge. Offline transactions will be stored on user devices and synchronized with the central platform once connectivity is restored. However, implementing this feature presents technical hurdles, which are also being explored by other central banks worldwide.
To promote accessibility, the system will provide digital accounts for participants and digital wallets for individuals. These wallets will be integrated with banking apps and other financial services, bridging the gap between traditional and digital financial systems.
Strategic Vision and Public Engagement
Public consultations on the digital som began in August, including discussions on necessary constitutional amendments to support its implementation. Mels Attokurov, Deputy Chairman of the National Bank, highlighted the digital som’s potential to modernize Kyrgyzstan’s financial system while ensuring stability.
The government aims to enhance financial inclusion, particularly in remote regions, by offering secure and efficient payment options. This initiative aligns with global trends in digital finance.
Path to Full Deployment
Extensive prototype testing and public feedback will guide the National Bank’s decision on full-scale deployment by the end of 2026. If successful, the digital som will position Kyrgyzstan as a leader in adopting digital currencies within Central Asia.
Global Context of CBDC Development
Kyrgyzstan’s CBDC efforts reflect a broader global trend. According to the Atlantic Council, 134 countries—representing 98% of the global economy—are exploring CBDCs, a sharp increase from 35 in 2020. Among these, 66 nations have advanced significantly, with countries like the Bahamas, Jamaica, and Nigeria already implementing CBDCs for retail use. Additionally, 44 nations, including Australia, Indonesia, Singapore, and Malaysia, are conducting pilot programs.
Addressing Global Financial Challenges
The rapid development of CBDCs aims to tackle declining cash usage and growing competition from cryptocurrencies like Bitcoin. China’s digital yuan (e-CNY) leads the charge, achieving nearly $986 billion in transactions across 17 regions, a dramatic rise from $253 billion the previous year. This initiative has significantly influenced sectors like education and tourism.
As Kyrgyzstan prepares to launch the digital som, its efforts contribute to the global race toward modernizing financial systems and embracing digital innovation
The post Kyrgyzstan Passes Law Defining Digital Som CBDC Framework appeared first on Cryptonews.
