Kazakhstan has launched a pilot project to use its digital tenge central bank digital currency (CBDC) to pay for construction on a rail line to China. The project uses “marked,” or programmable, digital tenge to see that allocated funds reach the intended recipients at the right time.
The new project marks the beginning of the second phase of introduction of the CBDC. It will ensure transparency, targeted use, and efficiency, the National Bank of Kazakhstan (NBK) said in a statement.
Government money spent as intended
Marking was implemented throughout the supply chain using “the existing interfaces of market participants in the usual format.” The money was disbursed on completion of the work:
"During the pilot launch of the digital tenge platform, the money allocated to finance the project was marked. The marked digital tenge is paid only to organisations that have fully fulfilled the required obligations."
The marked CBDC was used to enlarge the rail line between Moyynty in central Kazakhstan and Dostyk on the Chinese border across from Xinjiang. The line is on the nascent Belt and Road transit corridor intended to link China with Western markets.
Money from the Kazakhstan National Fund sovereign wealth fund was used in the project. The Kazakhstan government and the state Anti-Corruption Agency plan to extend the project to targeted expenditures in agriculture, construction and social benefits, the central bank said.
Halyk Bank of Kazakhstan participated in the project, and other banks will be included as the project expands, the NBK said. Separate projects involving tax administration, cross-border payments and “settlements in the field of digital assets” are also planned.
How smart is a smart CBDC?
The first phase of the digital tenge pilot concluded in December. It encompassed a wide range of functions, from providing free school lunches to implementing cross-border payments on the SWIFT system. The Kazakhstan CBDC infrastructure has been integrated with the BNB Chain. The country is aiming for a full rollout of its CBDC in 2025.
The NBK and People’s Bank of China signed a Memorandum of Understanding on joint CBDC research on July 10, during Chinese President Xi Jinping’s state visit to Kazakhstan.
Programmability through the use of smart contracts is an especially controversial feature of CBDCs for many Western commentators, who see it as an additional way the technology could limit the public’s free spending. The advantages of programmability for consumer protection and preventing unintended uses have also been noted. In addition, programmability would enhance the functionality of CBDC in decentralized finance.