Kazakhstan's Leading Fintech Authority Apparently Disputes the notion of Digital Tenge as a Solution All-Round
Kazakhstan's Digital Cash Dream
Astonishing Astana, Kazakhstan is on a wild ride with its central bank digital currency and open banking infrastructure. Binur Zhalenov, a digital whiz kid at the National Bank of Kazakhstan (NBK), discusses the digital tenge and whether old-fashioned greenbacks are still relevant in today's digital world.
Zhalenov, a Bolashak scholar, has always dreamt of contributing to his nation's progress. Credit for the fabulous photo goes to The Astana Times.
Digital Currency Fever
In recent times, central banks worldwide are jonesing for digital currency offerings. China is streaking ahead with the digital yuan, e-CNY, and a pilot scheme kicking off in 2017. Per the U.S.-based Atlantic Council, 65 countries are exploring the digital currency realm, either developing, piloting, or launching projects.
Zhalenov, who leads the National Payment Systems Corporation, explains that the digital tenge rollout is a no-brainer for Kazakhstan. This project has been spearheaded by the NBK since 2021.
"Clearly, a digital economy needs digital cash," states Zhalenov. "Many people mix up digital money with electronic money. What matters to the end user is secure, affordable, safe transactions."
The Best of Both Worlds
The digital tenge can be thought of as virtual cash, bridging the gap between traditional paper currency and modern digital payments. You've got two types of cash fundamentals when you hold folding money: public cash issued by the central bank, sanctioned by the government, and private money, linked to commercial banks.
"Private cash carries some risk because if the bank goes tits-up, it's a struggle to recoup your cash," says Zhalenov. "Government-issued cash is backed by the government, making it more reliable."
The digital tenge ingeniously combines the best aspects of both worlds. It can be used through mobile banking apps or debit cards.
Real-World Use Cases
Kazakhstan's digital tenge, born from blockchain technology - a distributed ledger – also introduces a game-changer: programmability. This property can streamline government spending and make the admin clear as day.
"Programmability can guarantee transparency with budget spending, which holds the bureaucrats accountable," he adds.
More advanced ops for the digital tenge are in the offing, including a robust payment settlement infrastructure for digital assets, which might pick up steam after the U.S. administration's recent announcements about crypto regulations.
"As a central bank, we need to create a bridge between traditional banking and decentralized finance, ensuring financial stability and the assorted benefits," explains Zhalenov.
Cross-border payments are another area where digital tenge will flourish.
First Baby Steps
A government-backed stablecoin, a spin-off from the digital tenge project, will be one of the first consumer-facing use cases. Patrons at Kazakh banks will enjoy a secure, simple way to invest in and buy cryptocurrencies, in addition to making cross-border transactions.
Other use cases are more specialized, particularly in business-to-business (B2B) and government-to-business (G2B) scenarios, which can be slow and ridden with friction.
"Last year, we issued 250 billion digital tenge in a project related to government spending," Zhalenov reveals. "In collaboration with the Anti-Corruption Agency and the Ministry of Finance, we introduced a system called 'painting of money.'"
Budget funds allocated for specific infrastructure projects are tokenized in a way that each digital tenge is programmed to be spent only on pre-approved items in the project's spending plan.
"Each tenge goes where it should," he says.
Looking Ahead
According to Zhalenov, most real-world applications of the digital tenge will revolve around government spending, including public procurement and social programs, which cover about 60% of the budget. Digital tenge could accelerate this process.
A basic cash transaction can take months for the government to process. Wrap up the govtech system with the programmability of the digital tenge, and the process could be nearly instantaneous.
Zhalenov makes it clear that digital tenge's not here to creep you out, invade your privacy, or stalk you.
Reality Check
Zhalenov acknowledges that digital tenge won't cure all ills, stating, "Smart money isn't a magic cure-all. For digital tenge to be smart, we need to have other data systems that supply the proper info."
However, when equipped with proper data systems, information methods, and business processes, digital tenge can help tackle corruption, he says.
This mission is already underway, with a collaborative approach between the Ministry of Finance and the Anti-Corruption Agency. "We'll choose one budget program – let's say road construction – and integrate digital tenge with all systems linked to road construction, ensuring that funds are solely disbursed to legitimate suppliers," Zhalenov says.
Digital tenge may not be able to confirm if the supplier completed the work, but it can ensure that cash flow won't fuel illicit activities.
Cash has NEVER died
Zhalenov affirms that cash will always have a place, even as cashless transactions dominate. The latest figures for the NBK indicate that a hefty 87% of transactions continue to be cashless.
"I believe there's a place for cash," he reflects. "We see patterns in consumer behavior, and there are still some consumers who genuinely adore cash for various reasons. Since we've got at least one consumer who craves cash, we, as a central bank, will offer this opportunity."
Inclusivity, he notes, is about giving customers options rather than forcing them into the digital realm.
The Digital Future of Kazakhstan
So, what drives Binur Zhalenov? Er, his burning passion to make a difference in Kazakhstan. "I always wanted to contribute to my nation's development. I believe the work Binur and his team do is vital, not just for some hollow buzzwords, but for the real benefit of the people in Kazakhstan," he says.
"Last year, we hit a significant milestone when our payment systems reached a mind-blowing 1.5 quadrillion tenge [US$3.3 trillion] in transactions," he enthuses. "My squad delivers new projects and innovative products almost every quarter. When your team does something digital, it looks like magic!"
The driving force behind this man's motivation? His beloved family.
"I hope our work will benefit my loved ones too," he adds.
Stay tuned for a full interview with Binur Zhalenov coming soon on The Astana Times YouTube channel.
- The digital tenge, a government-issued digital currency in Kazakhstan, aims to combine the security and reliability of traditional paper currency with the convenience of modern digital payments.
- Programmability, a feature of the digital tenge, can enhance transparency in government spending, potentially reducing corruption by ensuring funds are spent only on pre-approved items in the project's spending plan.
- Although digital payments are increasing, Binur Zhalenov, a digital whiz kid at the National Bank of Kazakhstan, believes that cash will remain relevant due to consumer preferences and the importance of inclusivity.
