Kyrgyzstan Authorizes CBDC Pilot Project, Digital Som to be Legal Tender

Kyrgyzstan's President Sadyr Zhaparov has signed a constitutional law authorizing the launch of a central bank digital currency (CBDC) pilot project, granting the "digital som" legal tender status. This move marks a significant step in the country's financial evolution, as it provides a legal framework for the digital som, the national currency in digital form. The law empowers the National Bank of the Kyrgyz Republic with the exclusive right to issue the digital som, establish rules for its issuance and circulation, and oversee the platform on which the national currency will operate.

The decision to officially issue the CBDC is not expected until the end of 2026. If the central bank decides to adopt the digital som, it will need to implement cryptographic protection measures to ensure the digital som remains secure and isn't used for fraudulent transactions. Testing of the digital som platform is anticipated to commence this year. Zhaparov's approval follows the parliament's, the Jogorku Kenesh, endorsement of the amendment to Kyrgyzstan’s constitutional law on March 18.

This development comes amidst growing global interest in CBDCs, with 115 nations having initiated CBDC projects. However, only four CBDCs have officially launched, highlighting the cautious approach many countries are taking towards this new form of currency. The digital som, if issued, would join the ranks of the Bahamas Sand Dollar, Nigeria’s e-Naira, Zimbabwe’s ZiG, and Jamaica’s JAM-DEX as officially launched CBDCs.

Kyrgyzstan's move towards a CBDC is part of a broader strategy to leverage its abundant renewable energy resources for crypto mining operations. The country's abundant hydroelectric power, much of which is underutilized, makes it an attractive location for energy-intensive crypto mining activities. This initiative is expected to generate new opportunities for businesses and society as a whole, contributing to economic growth and the security of virtual assets.

While CBDCs offer potential benefits such as enhanced financial inclusion and transaction efficiency, they also face criticism from some members of the crypto community. Concerns include the potential undermining of financial privacy and the enabling of excessive government oversight. Despite these criticisms, the legalization of the digital som in Kyrgyzstan represents a significant step towards embracing digital financial technologies and positions the country as a forward-thinking nation in the global financial landscape.