Kyrgyzstan Advances Plans for National Digital Currency

Kyrgyzstan is one step closer to launching its national digital currency, the digital som, after the country’s Parliament approved a draft law outlining its legal framework.

In a move reported by Azerbaijani media outlet Trend, Kyrgyzstan’s Parliament has given the green light to a draft law defining the digital som’s status and legal parameters in its first reading. This marks a significant milestone in the country’s efforts to establish a central bank digital currency (CBDC) under the supervision of the National Bank of Kyrgyzstan.

Prototype Testing Set for Early 2025

The National Bank plans to begin testing prototypes of the digital som in early 2025. After successful trials, the bank intends to make a decision regarding full implementation by the end of 2026. If adopted, the digital som will become legal tender, exclusively issued by the central bank. It will be distributed and managed through a specialized platform responsible for overseeing its distribution, accounting, and security measures.

Offline Transactions a Key Feature

One of the notable features of Kyrgyzstan’s digital som is its ability to support both online and offline transactions. This will ensure that users in areas with limited internet connectivity can still conduct transactions. Offline transactions will be temporarily stored locally on devices and synchronized with the platform once internet access is restored.

Despite this promising feature, questions remain about how the National Bank of Kyrgyzstan will address the technical challenges of implementing offline functionality, a concern that has been raised by central banks globally as they explore CBDC solutions.

Constitutional Amendments and Digital Infrastructure

In August, the National Bank of Kyrgyzstan initiated public discussions on constitutional amendments that would facilitate the integration of the digital som. The proposed system would include digital accounts for platform participants and digital wallets for individual users, which would be accessible through banking apps and other financial institutions.

Unlike many other CBDC projects that emphasize blockchain technology, Kyrgyzstan’s draft law does not specifically mention distributed ledger technology (DLT). Instead, it focuses on the use of smart contracts and emphasizes centralized management under the National Bank of Kyrgyzstan.

Full Integration by 2027

The digital som is expected to be fully integrated into Kyrgyzstan’s financial ecosystem by January 2027, marking a significant step in the country’s efforts to modernize its currency system and improve financial inclusion. While the digital som remains in the early stages of development, its potential to reshape the national economy is already drawing attention as countries around the world explore the possibilities of CBDCs.