The National Bank of the Kyrgyz Republic (NBKR) has released draft legislation on the creation of a Kyrgystani som central bank digital currency (CBDC). The legislation is all in the form of amendments, with the Constitutional Law of the Kyrgyz Republic on the National Bank of the Kyrgyz Republic and the Law on the Payment System of the Kyrgyz Republic needing the most changes.
12 companies submitted proposals in March for testing a digital som prototype in a sandbox environment. The NBKR project team produced a demo version of a som CBDC the following month on the blockchain of an unnamed applicant but did not select a provider.
A legislative framework for a CBDC
No technology provider has been announced for the digital som’s platform, but amendments to the law on the national bank specify that it will be the platform operator.
It would appear from the package of amendments to other legislation that the proposed digital som would be intermediated, with the NBKR opening accounts for participants on the platform, which would be “banks and the Central Treasury of the Ministry of Finance of the Kyrgyz Republic.”
The participants would create wallets for users, which could be “an individual, legal entity or individual entrepreneur.” In addition, “payment system operators/payment organizations providing the infrastructure for access to the digital som platform” would be direct participants in the platform.
The role of the intermediary bank would be somewhat different from what is seen in many CBDC schema, as the intermediary would verify the user’s transaction and send an order for its execution to the operator (the NBKR). Users would be able to redeem digital som through an app:
“Digital soms are redeemed from the user’s digital wallet by exchanging digital soms for non-cash funds (into their bank account, electronic wallet, bank card), which are managed by the user of the digital wallet through a mobile application of payment system participants.”
The proposal foresees offline transaction functionality.
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Many CBDC details to come
The digital som would be legal tender. The NBKR would produce rules for privacy, cybersecurity, dispute resolution and other technical issues before the launch of the CBDC.
The draft laws are open to public comment through Sept. 7. If passed, they would come into force on Jan. 1, 2027.
The Kyrgyz Republic is located in Central Asia and has a population of 7.2 million and an emerging crypto mining industry thanks to its abundant hydropower resources. The country introduced cryptocurrency exchange regulations in 2021.
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