Kyrgyzstan proposes new legislation to legalize CBDC

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Kyrgyzstan has proposed amendments to laws governing its central bank and the payments industry to pave the way for a central bank digital currency (CBDC).

The National Bank of the Kyrgyz Republic (NBKR) has stepped up its CBDC development this year. In March, it selected 12 companies that had submitted proposals for a digital som. They included New York-based R3, the company behind the Corda blockchain, and Germany’s Giesecke+Devrient (G+D), which is conducting similar CBDC projects with Mauritania, Thailand, Brazil, and Ghana.

A month later, the central bank revealed that it had developed a demo version of the digital som on the blockchain platform of one of the 12 applicants, but didn’t reveal which. It also didn’t reveal whether it had selected the final technology provider.

In its first update since April, the NBKR has proposed amendments to the country’s laws to facilitate a CBDC. In particular, it seeks to change the rules governing the central bank’s mandate and the payments laws.

Kyrgyzstan joins a growing list of countries that have proposed changes to their laws to accommodate a CBDC. This includes Russia, where President Vladimir Putin signed into law a bill that allowed the central bank to issue a digital ruble. At a regional level, the European Commission proposed a similar law last year to lay the foundation for a digital euro.

The proposed amendments in Kyrgyzstan establish NBKR as the sole operator of the CBDC platform, with the country’s treasury and commercial banks as some of the other top-tier participants.

The country intends to operate an intermediated system where the banks and payment services connect directly to the central bank’s system and then offer CBDC services to the masses. This is the most popular CBDC system globally as central banks seek to preserve the role of commercial banks in providing retail financial services.

However, a few, like Israel, have proposed a system in which the central bank directly offers CBDC services to the populace, competing with commercial banks. The Bank of Israel believes that this setup will keep the banks on their toes, ultimately translating into better services for the consumers.

Watch: CBDCs are more than just digital money