Kyrgyzstan is set to begin testing its digital som. When will Tajikistan introduce its digital somoni? Discussions about this in the country started four years ago.
The National Bank of Kyrgyzstan will commence testing the viability of its digital som concept in 2025, according to Kyrgyz media reports.
"This is an important step in implementing a project aimed at creating a national digital currency and adapting to global financial trends," the statement reads.
It is noted that the National Bank of Kyrgyzstan is currently studying international experience and testing key technologies to ensure the successful integration of digital currency into the country’s financial system. The implementation of the digital som is expected between the second and fourth quarters of 2026.
Advantages of the digital som
The authors of the concept claim that the digital som offers several advantages for the population, businesses, the financial sector, and the state as a whole:
1. For the population – The digital som increases access to and penetration of financial services across the country, including remote regions.
2. For the financial sector – The introduction of the digital som is expected to be a new milestone in the development of financial services.
3. For the state – A key advantage of the new digital currency is the ability to more effectively control the targeted use of budget funds.
All three forms of Kyrgyzstan's national currency will be equivalent — 1 physical som equals 1 cashless som, and 1 digital som is equivalent to both. Money holders can freely convert soms between these forms.
What about the digital somoni?
Information about the development of a digital somoni first appeared in late September 2021, when media, citing a Twitter post (now X), reported a partnership between the digital currency promotion platform Fantom Foundation ICO and Tajikistan’s commercial bank, Orienbonk, to develop the country's national digital currency.
The report stated that Fantom had signed a memorandum of understanding with OJSC Orienbonk and that the National Bank of Tajikistan (NBT) would join them to develop and test commercial and retail payment networks for a digital version of the Tajik national currency, the somoni.
However, the NBT immediately denied the authenticity of this information, stating that there were no agreements with the Fantom Foundation platform and could not be any.
In early August 2023, the NBT leadership commented on the prospects of developing and implementing a digital somoni, noting that necessary preconditions must first be established.
The Tajik financial regulator expressed hope that a digital somoni would eventually be introduced in the future as cashless payments continue to expand.
What is digital money?
Digital money (or digital currency) refers to any means of payment that exists purely in electronic form. Digital money does not have a physical and tangible form, such as a dollar bill or a coin, and is accounted for and transferred using online systems.
One of the aims of digital money is to do away with the time lag and operating costs inherent in current systems by using distributed ledger technology (DLT).
One of the key advancements in DLT systems is historically linked encryption methods that chain blocks together (called a blockchain). Blockchains improve the resiliency of a financial network because they make it very difficult to change records or access them.
A blockchain with a decentralized and distributed validation mechanism also solves the double-spending problem, where a digital asset can be spent more than once because there is no physical transfer.
Thanks to its technological underpinning, digital money can be adapted to suit multiple purposes and can take on various forms:
- Central Bank Digital Currencies (CBDCs) — CBDCs are currencies issued by a country's central bank. They are separate from fiat currencies, backed by the authority and credit of a central bank, and are another obligation of the institution.
- Cryptocurrencies — a digital currency designed using cryptography. They are more commonly becoming known as virtual currencies, a subclass of digital currencies, in an effort to distinguish them from officially recognized money.
- Stablecoins — a variation of cryptocurrencies and were developed to counter the price volatility of regular cryptocurrencies. Stablecoins can be likened to a form of private money whose price is tied to that of a fiat currency or a basket of goods to ensure that they remain stable.
The current financial infrastructure is a complex system of many entities. Conducting transactions between financial institutions takes time and money because they work in different technological systems and regulation regimes. The main advantage of digital money is that it speeds up transaction speeds and cuts back on costs.
