Kyrgyzstan President Sadyr Japarov has signed constitutional law amendments that give the Digital Som, the country’s central bank digital currency (CBDC) some legal status.
According to a statement from Kyrgyzstan’s presidential office, the act is a part of the government’s broader effort to create the legal groundwork for a pilot project related to the Kyrgyzstan CBDC project and other digital currency applications.
Following the signing of the amendments to the country’s constitutional law, the Central Bank has been empowered to create rules on how payment transactions would be conducted using the digital Som. The authorization allows the bank to propose standards and oversight measures for the Kyrgyzstan CBDC system to be implemented shortly. President Sadyr Japarov said in the statement:
“The amendment to the Constitution law aims to launch the pilot project for the national digital currency prototype ‘digital som’ and to create its legal basis.”
Digital Som Will Feature Advanced Technological and Software Infrastructure
According to the President’s official website, the new law’s provisions were initially adopted on March 20 by the country’s Supreme Council. According to local press reports, the country is due to test the Digital Som later this year. However, the final decision on the issue of the Kyrgyzstan CBDC is expected sometime later next year.
The President’s report states that the Digital Som will be recognized as legal tender in digital format within the country’s borders. It will be circulated and issued using a special format overseen by the National Bank. The platform will feature advanced technological and software infrastructure for the issuance, accounting, and distribution of the Kyrgyzstan CBDC.
115 Countries Working on CBDCs
According to the communique, the new Digital Som law authorizes the Kyrgyz Central Bank to develop and approve systems and laws to be followed by banks and other regulated entities. The Central Bank will also define cryptographic security standards that will ensure safe transactions and prevent fraud. Per Kyrgyzstan’s payment system legislation, the Central Bank will also exercise other operational functions for the CBDC.
Despite being heavily criticized by some players within the cryptocurrency ecosystem, at least 115 countries have initiated plans for their launch, with only four countries officially launching them. These are the Bahamas’ Sand Dollar, Nigeria’s e-Naira, Zimbabwe’s ZiG, and Jamaica’s JAM-DE. Critics are concerned that the development of CBDCs could undermine financial privacy and enable excessive government oversight, among other things. Several nations within the EU block have also moved toward issuing a CBDC, with the US moving away from the concept.
Conclusion
Kyrgyzstan President Sadyr Japarov’s initiative is a bold step that could potentially assist with developing the economy through digital assets while “generating new opportunities for businesses and society as a whole.” Early this month, Binance Founder Changpeng Zhao revealed he had signed a memorandum advising the Kyrgyz leadership on blockchain and crypto issues.
Frequently Asked Questions (FAQs)
What are the benefits of CBDCs?
If implemented, CBDCs can reduce the cost of printing money and increase transaction speeds. They also aim to reach unbanked and underbanked individuals and include them in the financial space, enhancing payment security while striving to reduce the chances of fraud.
How many types of CBDC are there?
There are currently at least three types of CBDCs: retail, wholesale, and hybrid. Every country debates the unique design and implementation of a CBDC, depending on the unique needs of its economy.
What are CBDCs backed by?
In most cases, CBDCs are designed to be used like cash for buying and selling goods and services. Just like physical cash, they are backed by the central bank. CBDCs have the potential to help expand access to payments and bring more people into the digital economy.
Appendix: Glossary to Key Terms
CBDC: A central bank digital currency (CBDC) is a digital fiat currency issued by a central bank rather than a commercial bank.
Digital Som: A unique digital token (non-physical form) representing Kyrgyz currency will be stored in a special digital wallet.
Legal Act: A formal written enactment produced by a legislature; a legal document, regulation, or part of the law.
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