Salvador: Binur, you have been behind the Digital Tenge since its inception, from the publication of the first concept paper, back in May 2021. The launch of the Digital Tenge is a remarkable milestone in the history of Kazakhstan and, I would add, for the world. To set the scene, could you tell us a bit more about the objectives for having a CBDC in Kazakhstan? What led you to start this project?
Binur: At the National Bank of Kazakhstan, we do not think that CBDC should replace existing forms of money, like cash or cashless payments. We believe it's a great addition to the existing monetary system. We have several objectives in rolling out a CBDC in Kazakhstan. First, and the most obvious, is regarding financial inclusion because of the unique feature of the Digital Tenge, which enables offline, cashless payments. The second part of our value proposition is enhancing the efficiency of government budget spending. CBDC can enhance transparency and the effectiveness of government subsidies and procurement, among other aspects.
We strongly believe that the future of money is tokenized. Obviously, CBDC is not the only form of money, which will be tokenized, but it provides a good foundation. As the Bank for International Settlements (BIS) suggests, CBDC can act as a unified ledger for all forms of money, including tokenized money. And we believe that CBDC can build a bridge between existing traditional financial infrastructure and the future of the digital economy, which will have plenty of tokenized assets.
That's why we built the Digital Tenge based on a distributed ledger technology platform. We also strongly believe that CBDC has great potential to address frictions in cross-border payments. So, we are partnering with SWIFT and the BIS, including through the m-Bridge Initiative - a multi-CBDC platform for cross-border payments - to explore this opportunity.
CBDC’s programmability capabilities are also relevant for the development of new fintech. We firmly believe that smart contracts and other aspects of programmability can benefit financial institutions by giving them the ability to build new types of financial products. And, in theory, it can be also synergized with Open Banking, which we refer to as Open API, which is another initiative we are launching in our financial infrastructure.
All in all, this launch is about innovation and competition.
Salvador: One of the most heated discussions around CBDC in the world is about the risks of disintermediation of financial institutions and the modalities of banks’ participation. In Kazakhstan, you made the decision to go with a model that actively involves commercial banks in the distribution of CBDC, both through their apps, but also through debit cards linked to international schemes.
Could you elaborate and tell us more about how you chose this distribution model for the CBDC, the role that you envision for commercial banks, and how you ended up concluding that it was worth considering linking a CBDC with a debit card?
Binur: So, first, we do not want to replace international payments systems and financial institutions with CBDC. My personal belief and recommendation for any CBDC project is to build and drive a broader ecosystem, which should include as many participants as possible, with clear roles and responsibilities. Also, central banks are not designed to interact with end consumers. And I don't really think that the introduction of CBDC should change this, because we have already a stable and well-developed financial system.
When we have a Central Bank which issues the money and controls macro-financial stability, second-tier bonds which operate last mile infrastructure, and international payment systems that connect this network globally – our strategic decision was to cooperate from the start.
We then decided to have a CBDC distribution strategy that leverages the existing banking infrastructure (what BIS refers to as a “two-tier model”) for distribution of CBDC, open account to end users and building value added services.
What is also important is providing the end consumer with the option to spend their CBDC. And the best way to do that is to give them that functionality and then cooperate with existing players and international payment systems, like Visa, because it not only connects the point-of-sale network locally, but also provides the end consumer with the ability to spend their money anywhere in the world. We, therefore, decided that a Visa debit card form factor for our CBDC is one of the best ways to ensure our CBDC has access to the existing card acceptance network.
Salvador: So far, we have a total of four commercial banks involved in this initial stage. In the future, how do you envision the evolution of the Digital Tenge in terms of signing up more banks and addressing specific use cases such as government disbursements?
Binur: Our objective is to connect all banks and payment service providers to a Digital Tenge. So far, we have five banks in the CBDC project and in 2024 we expect all banks to be actively distributing the Digital Tenge.
Our approach is product and consumer oriented. With every bank, we are developing a separate roadmap for 2024. We will target a particular product, which will be enabled by certain features; for example, offline payments using programmable smart contracts.
And in that long list of scenarios of use cases of the Digital Tenge, we also have tokenized money. So, there are several ideas worldwide on how we can adopt this idea of tokenization in the financial system. For instance, we are now discussing tokenized deposits. We are keen to build some of the CBDC Minimum Value Propositions (MVP) with certain banks in this area because we strongly believe that tokenization shouldn't be exclusive only for central bank money. We welcome private forms of tokenized money, and we believe there is a synergy between CBDC and tokenized CBDC and tokenized private money, because it can be settled instantly.
In addition, we are now focusing on the better delivery of social aid. This month, we launched a pilot project called the digital voucher scheme, whereby digital smart contracts help to deliver subsidies for the food in school canteens in a more targeted and efficient way.
In terms of the future evolution of the ecosystem, we can potentially see a new role in this for smart contract developers, and we are still thinking about how to regulate this. We can, perhaps, have third-party providers, authorized by a central bank, which are licensed to develop smart contracts for CBDC, and these third-party providers can separately provide their services for banks. Obviously, banks can also develop this service. So, in the future, in the new Digital Tenge ecosystem, we see a role for many players, including banks and fintechs.
In the next two years, we're going to explore different operating models and more use cases. We have more than 36 use cases on our long list. We're going to have a pilot, proof of concept and potential MVPs for every use case. And the most successful of them will be adopted by banks.
Ideally, by the end of 2025, we will have pioneers who will lead a first adoption, because I think that the role of the Central Bank as a catalyst should gradually decrease, and the initiative should be led more by private participants in the ecosystem.
Salvador: This is very exciting and congratulations again for having the vision to innovate in partnership with the private sector.
Kazakhstan’s CBDC experience is definitely a global benchmark in terms of collaboration with the private sector, bringing as many players as possible together to test new concepts.
And if you allow me just to bring our more Visa specific angle, what is the value that you see in terms of bringing international payment systems like us to the CBDC experience? How was your experience working with the Visa team and do you have any reflection that you would like to share about this experience?
Binur: We have been discussing this for quite a long time, since the beginning of our journey, and I'm very thankful to the Visa team for being open to this collaboration. We strongly believe that CBDC should be interoperable with the existing card merchant infrastructure, both domestically and internationally. Given Visa’s global scope, we found the partnership very attractive and a win-win proposition.
In addition, the benefit of this collaboration is ultimately ensuring we have CBDC interoperability. With a CBDC-linked debit card, we see an evolution to a sort of universal payment card that can include CBDC, fiat money and even crypto. Of course, we do not know how it would evolve further with the business models, fees, and tariffs. This is a matter of discussion, but I strongly believe in the value of this collaboration with international payment systems as we move to an increasingly tokenized money world. In the end, we will build together a better service to the end consumer and that's what matters most.
Interview highlights
Firstly, CBDC is, without a doubt, the future of money. We should all be prepared for that. Central banks are doing their job. The private sector must start thinking about how to engage in that discussion and innovate. Visa is doing this already.
Secondly, fostering interoperability and leveraging existing payment infrastructure is key. The user experience will determine the usage of CBDC. And, certainly, the existing acceptance infrastructure that international payment systems bring domestically and internationally can contribute to improving the CBDC value proposition.
Thirdly, use cases matter, and government disbursement, the programmability, has been mentioned. We didn't have a chance to go deeper, but clearly having well defined use cases is part of the playbook.
Fourthly, public and private sectors partnership are necessary to drive successful implementations of CBDC. The Kazakhstan experience is illustrative, as it considers the development of the whole ecosystem.
Finally, CBDC is at the forefront of payments innovation, and this cannot be done in isolation but must be undertaken in collaboration with all players, including international payment systems like Visa.
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