## IMF Technical Assistance Report – Kazakhstan (PREFACE; EXECUTIVE SUMMARY; RECOMMENDATIONS) ## Source details **Canonical URL:** [IMF Technical Assistance Report – Kazakhstan (PREFACE; EXECUTIVE SUMMARY; RECOMMENDATIONS)](https://www.imf.org/-/media/files/publications/tar/2026/english/tarea2026002-source-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/tar/2026/english/tarea2026002-source-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/tar/2026/english/tarea2026002-source-pdf.pdf.json) --- ### Background, mission, and timeline - At the request of the National Bank of the Republic of Kazakhstan (NBK), the IMF conducted a technical assistance (TA) mission on central bank digital currency (CBDC), the Digital Tenge (DT). - Two phases of TA: - virtual phase: from 20 February 2024 to 20 March 2024 - hybrid mission: visiting Astana from 22 May 2024 to 25 May 2024, and Almaty from 26 May 2024 to 4 June 2024 - Team composition: - a hybrid team of eight experts spanning CBDCs, retail payment systems, legal issues, technology, and cyber resilience - staff from MCM, ITD and one Short-Term Expert traveled to both Astana and Almaty; members from LEG and a second Short-Term Expert joined relevant meetings virtually - Key interlocutors: NBK and NPCK leadership and departments across payments, legal, monetary policy, financial stability, economic research, regulators, government agencies, commercial banks, wider payments industry, and consumer and business groups. - NBK decision to pursue issuance of DT: 2022; authorities targeting end-2025 for realization of an “industrial grade platform.” - Pilot status: “limited production” mode launched in November 2023, testing DT-linked card payments and digital school meal vouchers. ### Executive summary — objectives and core priorities - Stated DT objectives: - (i) modernization of the national payments system - (ii) increasing the efficiency of state-related payments - (iii) increasing innovation, efficiency, and competitiveness of the domestic financial market - Main cross-cutting needs identified: - legal basis for issuance and circulation of DT - institutional capacity and governance across NBK and NPCK - interoperability with existing payment systems and schemes - macro-financial analysis for expanded use cases - cybersecurity and operational resilience prior to scaling beyond limited production ### Key high-priority recommendations (selected) - Legal: - Review current legal and regulatory framework to identify gaps and provide legal clarity on NBK mandate to issue, distribute, and circulate DT. (NBK) — High priority — ST - Prepare draft amendments to relevant legislation for issuance, distribution, and circulation of DT. (NBK) — High — ST - Payments and interoperability: - Take stock of current regulatory powers and investigate feasibility of extending powers as needed. (NBK) — High — MT - Evaluate benefits of integrating DT and the instant payment system as an alternative/additional choice to card scheme integration. (NBK, NPCK) — High — MT - Institutional capacity, technology, and cyber resilience: - Establish a Taskforce/Steering Committee representing all NBK departments and relevant teams of ARDFM to refine common vision of DT. (NBK, NPCK, ARDFM) — High — ST - Consider creating a technical board with STBs to oversee operational and technical management aspects. (NPCK) — High — ST - Develop minimum-security requirements and commission independent security/resilience testing. (NPCK, NBK) — High — MT - Ensure ISO20022 compliance and maintain design flexibility with clear decision-making processes. (NBK, NPCK) — High — MT - Use cases and macro-financial analysis: - Increase analytical and operational capacity at NBK for DT design and monitoring. (NBK) — High — ST - Undertake baseline assessment of macro-financial implications of key DT use cases using regulatory/supervisory data. (NBK, supported by ARDFM) — High — MT - Pilot development and stakeholder engagement: - Provide clarity on DT vision through roadmap/status report for end-2025 production. (NBK, NPCK) — High — ST - Establish evaluation criteria for each use case and design user education strategies to avoid misinformation. (NBK, NPCK) — High — MT *IMF Technical Assistance Report – Kazakhstan (PREFACE; EXECUTIVE SUMMARY; RECOMMENDATIONS)* ### Legal considerations — findings and action items - Legal nature and claim: - CBDC is a digital currency issued by the central bank and represents a claim on the central bank. - CBDC forms part of the legally broad concept of “money” (currency, commercial and central bank book money, and electronic money). - Current NBK mandate gaps: - Law on NBK wording refers exclusively to “banknotes and coins” (Article 8(3)); does not contain explicit legal basis permitting issuance of CBDC. - If account-based CBDC pursued, Law on NBK lacks explicit provision allowing the central bank to open accounts for the general public; Article 52 limits NBK account holders to legal entities that have opened accounts per NBK procedures; banks and branches of non-resident banks are holders of bank accounts. - Monetary law points: - Monetary unit defined as Kazakhstani Tenge (Article 38 of Law on NBK; Article 127 of Civil Code); CBDC issued in existing official monetary unit — no need to amend definition of official monetary unit. - Legal tender, monopoly of issuance, and exchange at face value (cours forcé) currently limited to banknotes and coins; would need extension to DT. - Private law and payment-system considerations: - Legal framework should define DT platform operator roles, distribution relationships with financial institutions, settlement finality rules, and applicability of payment services rules to DT payments. - Token-based CBDC property law implications: transfer, custody, pledging, role of ledgers, private keys, custodial wallets; central bank liability must remain direct. - Cross-border legal considerations: - Robust legal framework required for cross-border DT use; assess current framework on use of Tenge by non-residents and NBK powers to engage in multilateral platforms. - Recommendations (legal): - Complete holistic review of all applicable laws to provide legal clarity on NBK mandate for DT issuance before industrial-grade launch. - Prepare draft amendments in line with Kazakhstan legislative procedures; IMF Legal TA could be requested to review drafts. - Financial integrity aspects not in scope but flagged for future consideration as operational rules are developed. ### Interoperability and payments landscape — key facts and implications - Payments landscape context: - Rapid digitalization: 2024 statistics show share of non-cash payments was 98 percent of the total number of payments (85 percent in terms of value), up from 50 percent in 2017. - Estimated 41 percent of the population continue to live in rural regions; rural areas rely more on cash and bank branches. - Payments infrastructure and activity: - NPCK operates ISMT (RTGSS) and ICS; supports instant/fast payments with a private partner. - ISMT processed 9.4 million transactions to the value of 433.5 trillion Tenge during January-April 2024. - ISMT/ICS together represented 34 percent of the 27.4 million transactions, and 99 percent of value (436.9 trillion Tenge) conducted through both systems (January-April 2024). - Market structure and concentration: - About 90 percent of digital payments by volume occur in-house or “on-us” through two largest banks’ networks (Kaspi and Halyk). - Two largest banks operate proprietary closed-loop ecosystems; network effects and exit costs lower contestability. - DT architecture and interoperability design points: - Two-tier model: STBs validate DT transactions, distribute DT, and run nodes; issuance/redemption requests flow via RTGSS. - Current DT access requires a bank account and Kazakhstani ID or legal entity registration — limiting DT’s potential to widen access. - Governance: NPCK responsible for implementation; NBK Payment Systems Department retains strategic control. Recommendation: NPCK retain control of critical infrastructure parts (issuance node, notary node) as decentralization increases. - Wallets: users can hold one DT wallet per distributing bank and could hold multiple wallets across banks; future design should consider cross-wallet limits/enforcement. - Interoperability testing gaps: - Pilot did not test on-demand issuance/redemption from commercial bank Tenge to DT end-to-end; 2023 pilot focused on integration during a payment and ATM withdrawal. - Important testing topics include user understanding of issuance/redemption, bank app design, bank-imposed frictions, and buffer DT holdings by banks for out-of-hours requests. - Integration options and trade-offs (high-level): - Card scheme integration: DT converted into bank deposits then routed over card rails — benefits include merchant acceptance and convenience; limitations include no improvement in settlement speed or merchant costs and limited innovation upside. - Instant payment integration and unified QR code: potential synergies to enable 24/7 funding/defunding and easier merchant acceptance if QR data formats account for DT. - Other domestic options: DT-backed stablecoins, multi-asset/platform “colored monies”; each presents benefits (programmability, new services) and adverse considerations (issuer risk, governance, concentration, performance). - Cross-border options: interlinking with other platforms (SWIFT CBDC Connector), mBridge participation; require ISO 20022 harmonization and PvP/DvP considerations. ### Supervisory and regulatory actions recommended - Evaluate NBK’s role and remit in payments regulation and powers for interoperability; identify gaps between central bank and regulator responsibilities. - Build capacity to draft scheme rulebook and service level agreements for DT. - Seek further TA on payments systems regulation and supervision to align DT with objectives: choice, resilience, competition. ### Macro-financial implications and use-case expansion — core findings - Current limited production retail scenarios: assessed as low risk to financial stability; broader use cases require targeted analysis. - Key macro-financial concerns: - Single platform supporting many use cases increases uncertainty in demand dynamics and forecasting for impacts on commercial banks. - Allowing broad access could raise risk of runs into DT as a perceived “safe asset” during stress. - Current DT account opening framework (requiring bank account and Kazakhstan ID/legal entity registration) may mitigate severe macro-financial impacts from cross-border non-resident use. - Use of DT or DT-backed stablecoin can increase risk transmission among crypto markets, traditional finance, and NBK — requires regulatory review (echoes FSAP guidance). - Interest-rate design: - Zero interest design reduces DT attractiveness vs commercial bank money in normal times; typical deposit rates available to citizens around 14 percent. - In crises, conversion into zero-interest DT could still create bank funding stress despite normal-time disincentives. - Analytical gaps and recommendations: - NBK commissioned a DGSE-model economic assessment in 2022 focused on retail uses; concluded little impact on financial stability for retail scenarios. - Commercial banks, ARDFM supervisory teams, and NBK analytical teams had not conducted internal sensitivity tests for retail and broader use cases. - Recommendation: undertake baseline assessment of macro-financial implications using regulatory/supervisory data; conduct iterative scenario analyses as use cases evolve. ### Use-case ranges and examples - Use-case ranges for design/experimentation: - Range A: design allows use across borders and without limits. - Range B: small retail transfers (initial retail focus in 2022 assessment). - Range C: limited production model tested broader domestic and cross-border DT transactions (majority initiated in DT but not carried out end-to-end). - Range D: experimental testing includes government to business payments and domestic securities settlement. - Public financing example: - Extreme scenario: all government payments made in DT. - Predicted government expenditure: around 24 trillion Tenge ($54 billion) in 2025. - Reference: as of May 1, 2024, current accounts and deposits in banks amounted to around thirty trillion Tenge of which individuals deposited around 60 percent. - Implication: large government payments in DT could materially reduce bank deposit funding and affect lending capacity. ### Wholesale, tokenization, and cross-border considerations - Wholesale CBDC use cases: interbank securities settlement, settlement asset for tokenized financial innovation, interbank cross-border payments. - NBK experiments (with KASE and Binance) used DT-backed stablecoins as money leg via escrowed DT; contrasted with SNB/SDX direct issuance model. - Tokenization demand: technical feasibility shown; mission did not find urgent stakeholder demand for tokenization currently except KASE pursuing KASE Digital. - Cross-border modes: - Card-based cross-border: DT-to-card flow leverages international card networks but not end-to-end DT. - SWIFT CBDC Connector and mBridge: options for linking domestic CBDC systems and multi-currency platforms; manual vs automated integration modes have trade-offs in automation and operational complexity. - Non-resident access: - Current eligibility criteria likely minimal non-resident holdings due to requirement for Kazakhstan national ID or special resident id number; reduces large macro-financial/capital flow risks but limits cross-border benefits. - Strategic guidance: - Prioritize domestic core functionality before resource-intensive cross-border experiments. - Maintain design flexibility to connect to external systems and adopt standards (e.g., ISO 20022). ### Pilot analysis, experimentation, and stakeholder engagement — findings - Pilot scope and methods: - Testing since 2021; NPCK first real-world pilots launched November 2023; target “fully operational” platform by end-2025. - Industrial loop deployed on Corda DLT; experimental loop for R&D, cross-border testing, stablecoins, tokenization. - Industrial loop pilot operational outcomes (CBDC-linked card pilot, ~one month): - PoS transactions: 100 percent rate of success. - Online purchases: 87 percent success rate. - ATM withdrawals: 82 percent success rate. - Pilot assessment vs objectives: - Industrial Loop — Digital Vouchers and CBDC-linked Card: pilot demonstrated feasibility but did not clearly map to stated objectives (efficiency & competitiveness, government payments, modernization & innovation, cross-border payments, financial inclusion). - Experimental R&D stablecoin and tokenization scenarios: no clear match to primary objectives at current stage. - Observed: no significant efficiency gains in retail transaction speed or cost from industrial loop; greater potential noted for government payments. - Evaluation and monitoring framework (recommended building blocks): - 1. Objectives — what DT aims to achieve and why - 2. Use Cases — how DT supports objectives - 3. Platform capability — sub-functional requirements (access, limits, onboarding, participation, security/resilience) - 4. Potential measures of “success” — quantitative and qualitative short- and long-term - 5. Evaluation and monitoring tools — reporting requirements and data collection - 6. Governance reporting — who reviews evaluation data and disclosure plans - 7. Evaluation timeline — cadence for review - 8. Forecast rollout timeline — target launch dates for specific use cases - Interoperability monitoring evidence from pilot: - DT → DT: intra-bank node tested in 2023 pilot (DT platform or intra-bank node). - DT → Commercial Bank Tenge: tested via card payment (redemption to bank node then card rails). - DT → Cash: tested via card use at ATM (redemption to bank node then withdrawn). - Commercial Bank Tenge → DT: Not tested in 2023 pilot. - Cash → DT: Not tested in 2023 pilot. - Stakeholder engagement observations: - Low external stakeholder awareness; no responses to last public call for feedback. - E-money firms not engaged; merchants and consumers underrepresented. - Government departments appeared disengaged and unable to comment on DT benefits for government spending use cases. - Engagement recommendations: - Develop targeted engagement formats (focus groups, targeted questionnaires, payment diaries, interviews, forums, behavioral trials). - Publish a forthcoming status report/roadmap for end-2025 priorities to enable industry engagement. - Include less vocal stakeholders (smaller banks, underrepresented user groups) in engagement. ### Institutional governance and capacity recommendations - Establish Taskforce/Committee representing NBK departments and NPCK to refine DT vision and oversee assessments (NBK, NPCK, ARDFM). - NPCK to consider creating a technical board with STBs to oversee operational and technical management. - NPCK to assess feasible use cases against platform technical capacity; recognize Corda DLT provides tokenization, programmability, confidentiality but requires performance/scalability fixes. - Maintain decision-making processes for design changes and ensure ISO20022 compliance. ### Cybersecurity and operational resilience — status and recommendations - Current posture and findings: - NBK/NPCK align security practices to ISO 27001, NIST, and CIS. - NPCK had ISO 27001 certification for four years; recertification planned. - NPCK explored OWASP, MITRE ATT&CK, and Corda Security Controls for threat modelling. - FINCERT (ARDFRM) processes cyber events from commercial banks’ security tools except payment services; requirement exists for financial services participants to report security incidents to FINCERT. - Challenges: scarce cyber expertise; FINCERT lacks external cyber intel/feeds; plans to enhance automation in two years. - Some DT pilot participants were not subjected to cybersecurity posture assessments; no independent penetration test commissioned before “go-live” in pilot phase. - Specific operational risks: - Concentration of payment services (Kaspi, Halyk) poses systemic cyber risk and potential single points of failure. - Open-source DLT platforms offer transparency and innovation but increase supply-chain vulnerability risks if not audited and governed. - Emerging technology threats: generative AI (amplifies social-engineering and misinformation risks) and quantum computing (threatens RSA and ECC cryptography used by Corda/DLT). - Cybersecurity recommendations (paragraphs 114–121, summarized): - ARDFRM FINCERT to enhance proactive incident detection/response: subscribe to industry intel feeds, extend services, conduct regular cyber drills, establish regular forums for sector cybersecurity/privacy awareness. - Review FINCERT organizational structure; separate information security from digital fraud management while ensuring close cooperation. - NBK/NPCK to assess DT classification against critical national infrastructure (CNI) requirements and prioritize development of minimum security and resilience requirements mapped to market participants’ roles. - Conduct thorough independent security and operational resilience testing of DT before industrial-grade launch and regularly in production (e.g., penetration tests, resilience exercises). - Build strategy for safe adoption of emerging technologies: - For AI: build capacity and oversight, consider restricted use, and talent development in AI security and supervision. - For quantum: plan migration to quantum-resistant cryptography, inventory cryptographic assets, and monitor expert guidance. ### Concrete cybersecurity action items (DT-specific) - Develop and approve minimum-security requirements guiding design and operationalization. - Map security and resilience requirements to market participant roles and assess readiness during handover of DT nodes. - Commission independent security/resilience testing prior to production and on a regular schedule in production. - Ensure market participants operating DT nodes undergo security assessments of IT environments before onboarding. - Consider fee-based access model for banks unable to host/operate nodes; ensure associated security obligations are defined and enforced. *IMF Technical Assistance Report – Kazakhstan (Introduction and Sections I–IV; Annexes I and IV).* ### PREFACE _____________________________________________________________________________________________ 6 ### PREFACE — Executive Summary and Recommendations ### Background and mission - At the request of the National Bank of the Republic of Kazakhstan (NBK), the International Monetary Fund (IMF) conducted a technical assistance (TA) mission on central bank digital currency (CBDC), known in Kazakhstan as the Digital Tenge (DT). - Two phases of TA were conducted: - virtual phase: from 20 February 2024 to 20 March 2024 - hybrid mission: visiting Astana from 22 May 2024 to 25 May 2024, and Almaty from 26 May 2024 to 4 June 2024 - Team composition: - a hybrid team of eight experts spanning CBDCs, retail payment systems, legal issues, technology, and cyber resilience - staff from MCM, ITD and one Short-Term Expert traveled to both Astana and Almaty; members from LEG and a second Short-Term Expert joined relevant meetings virtually - Key interlocutors included NBK and NPCK leadership and departments across payments, legal, monetary policy, financial stability, economic research, regulators, government agencies, commercial banks, wider payments industry, and consumer and business groups. ### Objectives, timeline, and experimental status - NBK decision to pursue issuance of a CBDC (Digital Tenge / DT): 2022. - Stated DT objectives: - (i) modernization of the national payments system - (ii) increasing the efficiency of state-related payments - (iii) increasing innovation, efficiency, and competitiveness of the domestic financial market - Authorities are targeting end-2025 for realization of an “industrial grade platform.” - Pilot actions: - “limited production” mode of the DT platform (with real users) launched in November 2023, testing DT-linked card payments and digital school meal vouchers. ### Legal considerations - Most central banks require an update to their mandate under organic law to provide legal certainty to issue a digital form of currency to the public. - Current NBK mandate on currency issuance is limited to “banknotes and coins.” (Law of the Republic of Kazakhstan “On the National Bank of Kazakhstan” (Article 8(3))) - Authorities are considering designating DT as e-money for small-scale testing, but this may not provide long-term legal certainty for widespread operation. - The mission recommended: - ensure issuance of DT is founded on a robust and ideally explicit legal basis ahead of launch of an “industrial-grade platform.” - review potential amendments to civil, payments, and private laws; further IMF TA could be requested once NBK identifies relevant laws. ### Institutional capacity and governance - Capacity building is needed across analytical and operational divisions of the NBK to support feasibility study, implementation, and assessments of DT. - Proposed governance arrangements: - establish a cross-NBK taskforce with involvement of related agencies (e.g., ARDFM) to ensure structures for critical design and operational decisions - create a technical board with second-tier banks (STBs) to oversee operational and technical management aspects of the DT platform - The primary project work run by Payment Systems Department of NBK and NPCK would benefit from wider buy-in across NBK departments. ### Interoperability and payments landscape - DT will be implemented into a concentrated payment landscape; alignment with existing payment systems is important to maximize benefits and manage substitution effects and regulatory gaps. - Considerations: - evaluate central bank’s current role and mandate in payments regulation and powers for interoperability - assess integration options, including integrating DT and the instant payment system as an alternative/additional choice to card scheme integration - build capacity to consider scheme (rulebook) and service level agreements for DT - The mission suggested further TA on payments systems supervision and regulation to align DT with payment systems objectives: choice, resilience, competition. ### Macro-financial implications and use-case expansion - Low risks to financial stability for current “limited production” retail scenarios; broader use cases require further targeted analysis. - Key concerns: - a single DT platform supporting all use cases increases uncertain demand dynamics and challenges for forecasting macro-financial risks, including impacts on commercial banks - allowing access to all actors could, in periods of financial stress, increase risk of runs into DT as a perceived “safe asset” - current framework for opening DT account (requiring a bank account and subsequent Kazakhstan ID or legal entity registration) may mitigate severe macro-financial impacts from cross-border non-resident use - use of DT or DT-backed stablecoin could increase risk transmission among the crypto asset market, traditional financial industry, and NBK—requiring review of domestic regulatory approach (echoing recent FSAP guidance) - Recommendations: - increase capacity and engagement within analytical and operational NBK divisions for DT design and monitoring - undertake a baseline assessment of macro-financial implications of key DT use cases using regulatory/supervisory data - continue engagement with Ministry of Finance and other agencies to clarify core metrics of success for government use cases - reflect on cross-border implications and engage proportionately with international cross-border experimentation ### Pilot analysis, experimentation, and stakeholder engagement - The mission’s pilot analysis focused on: - aligning objectives and experimentation of DT - using further piloting to evaluate future design choices - enhancing stakeholder engagement up to and beyond implementation - Pilot recommendations: - provide clarity on DT vision through a future roadmap/status report outlining key use cases targeted for production at end 2025 - work with industry to sort use cases into short and long term based on objectives and capacity - dedicate capacity to refine use cases centered in core objectives - establish evaluation criteria for each use case corresponding to DT objectives - identify and design user education strategies to avoid misinformation risks; test these in future pilots - seek out smaller or less-vocal stakeholders to ensure representation of larger and smaller FIs and consumer/business groups ### Cybersecurity and operational resilience - Strong cyber practices and mitigation of technical capacity constraints are fundamental prerequisites to DT operationalization. - Suggested measures: - develop minimum-security requirements to guide design, development, and operationalization ahead of broadening use cases - commission an independent security and resilience test of the DT platform before production and regularly thereafter - periodically assess if DT is classified as a critical FMI as use grows to determine appropriate level of protection from cyber threats - develop a strategy to build, upskill, and retain technology and cybersecurity expertise across NBK, NPCK, ARDFM - establish a regular joint forum to raise cybersecurity and privacy awareness in the financial sector and enhance proactive cyber incident detection and response (FINCERT ARDFM) ### Main recommendations (selected, with priority and timeframe) - Legal: - Review current legal and regulatory framework to identify gaps and provide legal clarity on NBK mandate to issue, distribute, and circulate DT. (NBK) — High priority — ST - Prepare draft amendments to relevant legislation for issuance, distribution, and circulation of DT. (NBK) — High — ST - Payments and interoperability: - Take stock of current regulatory powers and investigate feasibility of extending powers as needed. (NBK) — High — MT - Evaluate central bank’s current role and mandate in payments regulation (NBK) - Understand if/how scope needs to expand to support interoperability (NBK) - Build dedicated capacity for scheme (rulebook) and service level agreements (NBK, NPCK) - Seek further TA on payments systems regulatory framework (NBK) - Evaluate benefits of integrating DT and the instant payment system as an alternative/additional choice to card scheme integration. (NBK, NPCK) — High — MT - Institutional capacity, technology, and cyber resilience: - Establish a Taskforce/Steering Committee representing all NBK departments and relevant teams of ARDFM to refine common vision of DT. (NBK, NPCK, ARDFM) — High — ST - Consider creating a technical board with STBs to oversee operational and technical management aspects. (NPCK) — High — ST - Assess feasible use cases relative to existing and forecasted technical capacity of the platform. (NPCK) — High — ST - Ensure ISO20022 compliance and maintain design flexibility with clear decision-making processes. (NBK, NPCK) — High — MT - Develop minimum-security requirements and commission independent security/resilience testing. (NPCK, NBK) — High — MT - Develop strategy to build, upskill, and retain technology and cybersecurity expertise. (NBK, NPCK, ARDFM) — Potential areas for action — MT–LT - Establish joint forum for cybersecurity and privacy awareness (NBK, NPCK, ARDFM) - Enhance proactive cyber incident detection and response (FINCERT ARDFM) - Develop guidelines to ensure safe adoption of emerging technologies (NBK, NPCK) - Periodically assess DT classification as critical FMI (NBK) - Use cases and macro-financial analysis: - Increase analytical and operational capacity at NBK for DT design and monitoring. (NBK) — High — ST - Undertake baseline assessment of macro-financial implications of key DT use cases using regulatory/supervisory data. (NBK, supported by ARDFM) — High — MT - Continue to clarify metrics of success for government use cases with Ministry of Finance and other agencies. — Medium — ST - Reflect on cross-border implications and engage internationally. (NBK, NPCK) — Medium — LT - Pilot development and stakeholder engagement: - Provide clarity on DT vision through roadmap/status report for end-2025 production. (NBK, NPCK) — High — ST - Dedicate capacity to refine use cases and emphasize real-world testing for innovation, competition, interoperability, and choice. (NBK, NPCK) — High — MT - Establish evaluation criteria for each use case and design user education strategies to avoid misinformation. (NBK, NPCK) — High — MT - Ensure representation of both larger and smaller FIs and consumer/business groups in engagement. — High — LT *IMF Technical Assistance Report – Kazakhstan (PREFACE; EXECUTIVE SUMMARY; RECOMMENDATIONS)* ### Introduction ### Introduction ### Mission objective and scope - The mission’s objective was to support authorities in their analysis of the next steps on the DT project. Authorities are targeting end-2025 for the launch of an “industrial-grade” platform of the DT across Kazakhstan following a limited production pilot in 2023. - The mission structured the NBK request around five elements: i) legal considerations, ii) architecture and interoperability of DT, iii) security and resilience of payment systems, iv) broader use cases for DT, and v) an analysis of the pilot work to date to inform next steps. - The mission presented core aspects of CBDC including policy and technical considerations for interoperability of a retail DT, legal considerations of issuance and operation of DT, cross-border CBDC design and implications, and wholesale CBDC considerations. - The second phase supported discussions through a range of stakeholder engagement: internal NBK and NPCK staff, regulators (ARFDM, AFSA), government agencies, the payments and banking industry and civil society. ### Key contextual findings on payments landscape and DT implications - Kazakhstan’s payments landscape: - Rapid transformation to a near-cashless state in urban areas; rural areas with less reliable connections still rely on cash and banking services via bank branch networks. - A young population and the pandemic have accelerated digital trends. - Authorities are implementing measures to reinforce public digital payments infrastructure, including a fast payments system, but the bulk of payments presently run through two non-interoperable systems. - Lack of transparency of private systems partly underpins the NBK’s motivation to achieve a more efficient, open and interoperable payment landscape. - Implications for retail DT: - Success may be characterized by the added value DT provides as an alternative to or “efficiency improvement” on traditional bank and card rails. - Poor design/implementation could result in further fragmentation and contribute to inefficiencies. - G2P and G2B considerations: - Increasing desire for transparency in public spending has raised the priority of G2P and G2B use cases for DT; these were a current priority to test during the second phase. - Macro-financial implications require further analysis, including potential size of use cases, impact on the banking sector, and duration of large DT balances held outside banks’ balance sheets. ### Content and structure of the report - The report summarizes mission learnings and recommendations for next steps, including institutional capacity strengthening and external support needs. - Structure: section I — legal considerations of DT issuance and operation; section II — interoperability of DT with existing landscape; section III — expanding use cases, including pilot analysis; section IV — cyber and operational resilience approaches in Kazakhstan. Annexes I—IV provide supporting details. - Footnote: “industrial-grade” refers to an operationally-viable platform enabled for specific real-world DT use cases. ### I. Legal considerations for DT (summary) - Purpose: ensure legal certainty for issuance, circulation and distribution of DT across central bank, monetary and private law perspectives. - TA delivery: primarily virtual during phase one, with a short update in phase two. A. Central bank and monetary law - CBDC legal nature and claim: - CBDC is a digital currency issued by the central bank and represents a claim on the central bank. - CBDC forms part of the legally broad concept of “money” (currency, commercial and central bank book money, and electronic money). Electronic money defined as electronically stored monetary value represented by a claim on the issuer issued on receipt of funds for the purpose of making transactions and accepted by persons other than the issuer. - Current legal framework and considerations in Kazakhstan: - The Law of Republic of Kazakhstan “on Payments and Payment Systems” notes that e-money may also be issued by the NBK and authorities are temporarily considering leveraging the e-money framework to issue DT; mission recommended a further assessment on appropriateness taking design features and e-money regulatory applicability into account. - CBDC design features analyzed on four axes: (i) account-based v. token-based; (ii) wholesale v. retail; (iii) direct v. indirect; (iv) centralized v. decentralized. - Token-based CBDC: a new form of money, central bank liability in a digital token transferred by transfer of that token and entails no contractual relationship between central bank and holder. - Account-based CBDC: book money in digital form; transfer via debiting/crediting current accounts and legal ramifications via enforcement of contractual rights and obligations. - Public law questions: - Two key public law questions: (i) does the central bank have a sound mandate to legally issue CBDC, and (ii) is CBDC legally currency. - Issuance should be founded on a robust, ideally explicit, legal basis in central bank law (functions and powers). - Current gaps in Law on NBK: - Law on NBK does not yet contain a legal basis permitting issuance of CBDC; wording refers exclusively to “banknotes and coins”. - If CBDC were to be account-based, Law on NBK lacks explicit provision allowing the central bank to open accounts for the general public; Article 52 clarifies owners of bank account in NBK are legal entities that have opened account in manner established by NBK; banks and branches of non-resident banks are holders of bank accounts. - Monetary law considerations: - Monetary unit (national currency) is the Kazakhstani Tenge (Article 38 of Law on NBK; Article 127 of Civil Code); CBDC issued in the existing official monetary unit, so no need to amend definition of official monetary unit. - Legal framework limits the monopoly of issuance, legal tender and exchange at face value (cours forcé) to banknotes and coins; these provisions would need to be extended to DT. - Authorities must assess whether law can oblige general public to accept CBDC given dependency on technical infrastructure and privacy, and a limited scope could be considered for CBDC. B. Other private and payment-system law considerations - Roles and responsibilities: - Legal framework must regulate the DT platform, determine role of operator, relationship with financial institutions for distribution, and other roles defined by legislation. - Critical to determine when CBDC payments are considered definitive or final; settlement finality rules in Kazakhstan should be reviewed in light of DT design and use cases. - Framework should clarify application of rules for payment services to DT payments and obligations of payment service providers. - Private law and property rights: - Private law should provide legal certainty for DT circulation, including: (i) defining private legal nature of DT; (ii) addressing interaction between DT and private law mechanisms underpinning circulation. - Determining legal nature of token-based CBDC under property law will shape transfer, custody with commercial banks and pledging; token-based CBDC could be given a hybrid property law status (intangible for some issues, tangible for others). - Private law rules should define how ownership and other rights in token-based DT can be transferred; define roles of “ledgers,” “private keys,” and “custodial wallets.” - Token-based CBDC can be held indirectly through wallets via intermediaries, but CBDC should remain a direct liability of the central bank (monetary claim on central bank must not transform into claim on intermediary). - Cross-border use: - Robust legal framework required for DT cross-border payments if NBK moves beyond domestic retail CBDC. - Assessment of current framework on use of Tenge by non-residents required and whether to extend to DT. - Legal certainty needed for NBK powers to issue and use DT in multilateral/multijurisdictional platforms and to sign agreements with other central banks/foreign counterparts. - Regulatory scope for authorization and regulation/supervision of financial institutions’ participation in domestic and foreign payment systems and common platforms must be established. C. Recommendations (legal) - NBK should complete review of current legal and regulatory framework to provide legal clarity on its mandate for DT issuance before launch of an industrial grade platform. - A holistic review of all applicable laws underpins comprehensive amendments necessary prior to initiating a mandate change. - The 2023 White Paper noted these amendments would be identified by June 2024, but the mission was not provided with a list for review during the second phase. - Next step: ensure draft amendments to relevant legislation are prepared and can take effect within the targeted timeline in accordance with Kazakhstan legislative procedures. - IMF Legal TA could be further sought to review draft amendments in alignment with scope and recommendations covered in this TA. - Financial integrity aspects of CBDC were not in scope of this TA but may be an area for further legal consideration as DT operational rules are developed. ### II. Interoperability of DT with existing payments systems (summary) A. The existing payments landscape — payments trends - Payments and financial services have experienced rapid digitalization in the past seven years. - 2024 statistics: share of non-cash payments was 98 percent of the total number of payments (85 percent in terms of value), up from 50 percent in 2017. - Electronic transfers primarily undertaken by mobile phone, QR payments and mobile apps, or card payments at point of sale (PoS). - An estimated 41 percent of the population continue to live in rural regions, where cash plays a stronger role. B. Payments players and systems in Kazakhstan - Principal operational infrastructure provider: - NPCK, a subsidiary of the NBK, operates several systems including the Real Time Gross Settlement Service / RTGSS (known in Kazakhstan as the ISMT – Interbank System of Money Transfer) and interbank clearing system (ICS). - In conjunction with a private partner, NPCK supports the existing instant/fast payment system. - ISMT/ICS activity (January-April 2024): - ISMT processed 9.4 million transactions to the value of 433.5 trillion Tenge during January-April 2024. - This represents 34 percent of the 27.4 million transactions, and 99 percent of value (436.9 trillion Tenge) that was conducted through both the ISMT and ICS. - Retail settlement and intrabank payments: - Settlement of retail payments values is relatively low due to the high level of intrabank payments. - Card schemes can clear and settle payments through their own schemes or locally via Interbank System of Payment Cards (ISPC) for domestically-issued cards. - NPCK initiatives: - New instant/fast payments platform, an open banking initiative, and a unified QR code standard. - Kazakhstan’s new instant payments system would allow payments to be received instantly, but settlement is still scheduled to happen on a deferred net settlement basis. - NPCK’s instant payment initiative aims to be complementary, ensuring wider access and lower friction for inter-bank payments. - Private players: - Of the twenty-one commercial banks, the two largest banks (Kaspi and Halyk) are the dominant payment providers, offering proprietary closed loop ecosystems akin to super-apps. - Fast payment system operated through a public private partnership between NPCK and a private partner involves a limited subset of banks. - International card schemes in operation: Visa, Mastercard, UnionPay and Amex. - Several non-bank service providers or agents access the clearing system via one of the banks. - Non-bank e-money institutions (EMI) represent a smaller share, with 36 registered e-money systems as of May 21, 2024. *Source: IMF Technical Assistance Report – Kazakhstan (Introduction and Sections I–II).* ### 23. Kazakhstan’s digital payment landscape exhibits signs of market concentration and ### 23. Kazakhstan’s digital payment landscape exhibits signs of market concentration and ### Market concentration and fragmentation - About 90 percent of digital payments by volume occur in-house or “on-us” through two of the largest banks’ networks. - Interoperability is technically achieved through existing interbank settlement mechanisms, but strong incentives (including exit costs/fees) encourage users to remain within proprietary ecosystems (proprietary QR Codes). - Network effects and inter-bank frictions: - increase barriers to entry; - lower contestability of payment services; - risk money being “stuck” inside dominant systems. - Ongoing NPCK-driven initiatives aim to address interoperability challenges. ### Supporting factors: digital and financial infrastructure - Government digital programs and targets: - “Digital Kazakhstan” (launched 2017) to improve digital infrastructure and bridge the digital divide. - Target: 100 percent broadband internet coverage of regional centers and 95 percent home broadband adoption by 2025. - “250+ program” aims to extend high-speed internet to all villages with a population of 250 or more. - Financial inclusion: - Around 81 percent of the population was estimated to hold a financial account in 2021. - Rural population at higher risk of digital and financial exclusion. - Implication: DT is unlikely, at present design, to widen access to digital payments because DT onboarding requires a Kazakhstani ID or legal entity registration via a bank. ### Existing regulatory and supervisory arrangements - Payment systems classification: - One “systemically-important” payment system: the Interbank System of Money Transfer (IMTS). - Three “important” systems (not named in the excerpt). - Kaspi and Halyk bank are noted as operators of the two largest “networks” in the payment systems registry but: - They are not supervised and overseen as payment systems/for payment activities by the NBK; - Both are supervised by the ARDFM for banking services. - Operational resilience requirement: - Both large networks are deemed increasingly systemic and required to be operational 99 percent of the time. - NBK role: - The NBK does not undertake economic regulation of payments. - Fees/tariffs are a key area of interest; a committee on tariffs is exploring business models for existing payments. ### DT design: architecture considerations and implications for interoperability - Access and use: - Current DT design foresees very few access restrictions and no quantity limits. - DT could be used by citizens, residents, and legal entities across P2P, P2B, B2P, G2P, P2G, G2B use cases, subject to practical capacity constraints and prioritization. - Two-tier architecture: - Second-tier banks (STBs) validate DT transactions, distribute DT, and will operate their own node on the platform. - Leveraging STBs simplifies distribution since banks access the RTGSS for redemption/issuance requests. - Access requirement via a bank implies onboarding requires a Kazakhstani ID or legal entity registration; at this stage DT would not widen access. - Governance and operational control: - NPCK responsible for overall implementation; NBK (Payment Systems Department) retains strategic control over design updates. - Current deployment relies on NPCK servers (suitable for agile pilot). - Recommendation: NPCK should retain control of key infrastructure parts (issuance node, notary node) to preserve trust and protect against security/confidentiality/performance degradation as decentralization increases. - Wallets: - Users can hold one DT wallet per distributing bank and could hold multiple DT wallets across banks. - Future design should consider mechanisms to enforce limits across multiple wallets of the same user. ### Objectives and design considerations for interoperability - Interoperability fundamentals: - DT must ensure singleness of the Tenge and allow movement into/out of reserves, cash, and commercial bank deposits to maintain confidence in sovereign fiat currency. - Interoperability supports efficiency and convenience; lack of functional interoperability can fragment money and systems. - Directionality of interoperability: - Can be one-way or two-way and may vary by user type (individuals vs businesses). - Example: ECB approach distinguishes access/use by prohibiting businesses from holding digital euro while allowing payments with automatic conversion to commercial bank money. - Policy and operational testing needs: - The pilot did not test on-demand issuance/redemption of DT from commercial bank Tenge; instead it focused on interoperability during a payment and ATM withdrawal. - Important testing topics include: - Do users understand how to request DT or return it? - How might banks design issuance/redemption requests in mobile apps? - What rules/frictions may banks place on such requests? - Should banks hold buffer amounts of DT to honor funding requests outside RTGS operating hours? - Interoperability beyond domestic Tenge: - DT interoperability with other assets/currencies and crypto assets requires careful analysis (e.g., DT’s use as collateral or backing stablecoins). ### High-level comparison: integration of DT with card schemes and/or instant payment systems - Card scheme integration (pilot results): - Pilot tested DT integration with card schemes: DT converted into bank deposits, then transferred using existing card rails. - Benefits: - DT-initiated payments could be accepted by existing merchant networks; - Improves convenience and minimizes buildup of user DT balances; - Helps manage short-term substitution risk away from commercial bank Tenge. - Limitations: - Does not improve merchant cost or settlement time relative to status quo; - Does not offer new innovation opportunities. - Recommendation: Further test issuance/redemption of DT on request from bank deposits to understand policy and operational requirements. - Table of interoperability modes (high-level considerations summarized in source): - Domestic options include conversion with traditional Tenge (DT-linked card, ATM integration), stablecoin backing (DT-backed stablecoin pilots), transforming DT platform into multi-asset platform (vouchers/"colored monies"). - Cross-border options include interlinking with other platforms across borders (Swift pilot participation) and DT issuance on multi-currency platforms (mBridge participation). - Each option lists positive considerations (ü) and potential adverse considerations (?); examples from source: - Stablecoin backing: supports secure settlements on other platforms; low technical implementation costs for NPCK; requires regulatory review; issuer risk; increased crypto interconnectedness. - Transforming platform into multi-asset: unlocks new services; poses concentration risk; governance challenges; performance challenges. - Cross-border interlinking: supports PvP/DvP with DT; low technical impact; governance/operational difficulties; scalability issues without standards. ### Complementarity with instant payment system and unified QR code - Instant payment system: - Could provide alternative connection to RTGSS and allow funding/defunding of DT wallets on a 24/7 basis if NBK is a participant, enabling users to access DT at all times. - Kazakhstan’s instant payment system would settle via the RTGSS (ISMT) on a deferred net settlement basis. - Fast payment systems and CBDCs can be complementary: fast payment systems support interoperability between private issuers; CBDCs enable direct access and settlement to central bank money. - Unified QR code: - A standardized QR code for initiating payments across issuers is being developed for the instant payment initiative. - Current standard has not accounted for DT data formats; refining this could minimize changes at acceptance level and ease DT adoption for merchants/businesses. ### Recommendations and supervisory considerations - Evaluate NBK’s supervisory and regulatory powers around payments: - As the NBK reviews payments strategy beyond 2025, it should: - identify potential gaps in remits between the central bank and regulator; - assess what is viable for the NBK to determine in terms of regulation, oversight, and scheme rules; - decide whether further powers are needed and assess appetite to pursue updates. - Consider dedicating capacity to developing a rulebook for DT, recognizing the role of schemes/service level agreements. - The NBK could request further TA focused on payments regulation and supervision to support these actions. *IMF Technical Assistance Report – Kazakhstan* ### 41. The NBK and NPCK should evaluate the benefits of linking DT and the instant payment ### tarea2026002-source-pdf - 41. The NBK and NPCK should evaluate the benefits of linking DT and the instant payment ### Linking DT and the instant payment system - Recommendation: The NBK and NPCK should evaluate the benefits of linking DT and the instant payment system as a core mechanism for retail DT interoperability. - Expected benefits: - Efficient route for direct funding and defunding of individual accounts. - Potential synergies in development and production through closer alignment of projects. - Acceptance of both instant payments and DT may be facilitated through the QR code standard. - Stakeholder view: Over 80 percent of central banks surveyed saw these systems as complementary (BIS 2023). ### Expanding Use Cases: potential macro-financial implications - Current focus: The DT project to-date has focused on building production capability for retail transactions (payments between consumers, businesses and public authorities). - Broader potential: DT’s design, particularly in the absence of limits, could be used for: - Large value payments between businesses. - Payments between banks (wholesale use). - Cross-border payments. - Risks of expanded access: - Increased access to central bank money could lead to substantial funds being moved away from commercial banks into central bank accounts or digital wallets (bank disintermediation). - With universal access, not only individuals but merchants and large firms (including non-bank financial institutions) might move their funds. - Such shifts could significantly reduce deposits commercial banks rely on for lending activities, potentially reducing lending capacity, increasing the cost of borrowing, and destabilizing the financial system. - Interest-rate design note: The design decision of zero interest reduces DT’s attractiveness compared to commercial bank money with high yield, especially in normal times. - Citizens in Kazakhstan access from deposit account rates at around 14 percent. - In times of financial uncertainty or crisis, individuals, businesses and even non-bank financial institutions might rapidly convert commercial bank deposits into DT, potentially leading to digital bank runs. - Analytical status and gaps: - NBK commissioned an economic assessment of the DT in 2022 using a DGSE model; it considered retail uses and concluded DT would have little impact on financial stability. - The 2023 FSAP noted further scenarios could stress test this analysis and identify bank vulnerabilities. - Commercial banks, ARDFM supervisory teams, and NBK analytical teams had not conducted internal sensitivity tests or assessments of DT impact for retail or other use cases. - The mission emphasized the need for ex-ante analysis to inform design choices and pilot experimentation (e.g., to sensitize potential limit thresholds). - Iterative assessment: Future use cases and ultimate demand for DT could alter macro-financial implications and warrant separate and iterative economic assessments. - Use-case ranges (design and experimentation): - Range A: design allows for use across borders and without limits. - Range B: small retail transfers were the initial focus of the 2022 economic assessment. - Range C: limited production model has tested a broader range of domestic and cross-border DT transactions (majority initiated in DT but not carried out end-to-end). - Range D: experimental testing includes government to business payments and domestic securities settlement. ### Considerations on wholesale use cases - Definition notes: - “Wholesale CBDC” is not well-defined; narrow interpretation covers interbank payments, but can include large/high value payments between non-financial institutions. - Wholesale CBDC can be viewed as technology-based upgrade/complement to existing central bank reserves/RTGS. - Common international wholesale use cases discussed: - (i) domestic interbank securities transaction settlement; - (ii) settlement asset to support tokenized financial innovation (e.g., tokenized deposits); - (iii) interbank cross-border payments. - Example and comparison: - Swiss National Bank (SNB) and SIX Digital Exchange (SDX) issued a wholesale CBDC on SDX for delivery versus payment of tokenized securities (central bank money as money leg). - NBK experiments with KASE and Binance used DT-backed stablecoins as the money leg rather than NBK directly issuing money on KASE/ Binance platforms; KASE and Binance opened a main account and a special segregated account to escrow DT as backing for stablecoins. - Core difference: use of intermediary asset (stablecoin) in NBK experiments versus direct central bank issuance in SNB/SDX. - Tokenization demand: - Experimentation shows technical feasibility, but mission did not find urgent stakeholder demand for tokenization use cases at this stage (except KASE pursuing KASE Digital). - Recommendation: NBK and NPCK may undertake further work to understand drivers of demand for tokenization before further investment. ### Considerations on cross-border use cases - Cross-border functionality options: - Enabling cross-border functionality does not necessarily improve cross-border payments (which are slow, expensive, opaque, and inaccessible per FSB 2020). - To address frictions (fragmented/truncated data formats, complex compliance processing, limited operating hours, legacy technology, long transaction chains, funding costs, weak competition), cross-border DT arrangements need careful design and may require trade-offs with domestic design. - Current scenarios and implications: - Card scenario: enables cross-border functionality by transferring DT to card-issuing bank then triggering traditional card payment via international card networks; allows cross-border interoperability with card-accepting merchants but is not DT end-to-end and is limited to P2B and low value B2B payments reflecting card scheme limits. - SWIFT CBDC Connector scenario: presents one solution for linking domestic CBDC systems, highlighting ISO 20022 implementation/harmonization and the need for payment-vs-payment functionality with “smart contracts.” - mBridge participation: NBK obtained observer status in mBridge during 2023; mBridge focuses on joint wholesale CBDC platforms enabling multiple currencies to issue on a single platform and facilitating payment-vs-payment. - Integration modes (mBridge example): - Manual mode: central banks issue/redeem CBDCs on platform without modifying existing payment arrangements; commercial bank submits issuance request and conducts manual off-platform transfer to issuing central bank, which then issues CBDC on platform. - Automated mode: direct integration between domestic RTGSS/CBDC network and platform enabling highly automated cross-system processing. - Non-resident holdings and access policy: - Non-resident holdings/use of DT likely minimal under current eligibility criteria, which require a Kazakhstan national ID number (or special resident id number), restricting non-resident foreigners. - This model may limit macro-financial implications and capital flow concerns (Reslow and others 2024 warns wide non-resident access can be associated with larger macro-financial implications). - Current access policies suggest DT mostly restricted to domestic financial institutions, limiting large holdings outside Kazakhstan but trading off potential benefits like shortened transaction chains. - DT issuance should align with existing exchange or capital control policies. - Strategic guidance: - Central banks should build flexibility to connect to external systems via different channels and view domestic design through a cross-border lens (Reslow and others 2024). - Adopt international standards such as ISO 20022 and carefully assess access policies. - Participate in experimental projects selectively: do not allow resource-intensive cross-border experiments to crowd out refinement of basic domestic functionalities. - With the current roadmap, NBK and NPCK should consider cross-border experimentation only if it does not crowd out urgent needs to ensure basic functionalities. ### Considerations for public financing scenarios - Priority use cases and timeline: - G2B and G2P payments likely to become priority use cases to further test over the next year and potentially implement by end-2025. - Tax collection scenarios and tax transparency initiatives were frequently discussed objectives. - Potential impact: - High-value G2B contracts conducted in DT through programmable means may incentivize holding DT throughout the value chain and could have the most material impact for the banking sector among use cases. - Programmability and “coloring money”: - The DT project team is exploring “coloring money” to assess feasibility and benefits of using DT programmability in public procurement to enhance transparency, reduce corruption, and improve efficiency of budget fund utilization. - Many stakeholders prioritize this scenario as it showcases DT’s programmability and incurs relatively low-volume transaction load on the platform. *IMF Technical Assistance Report – Kazakhstan (excerpt).* ### 66. When considering this scenario, it is important to analyze the effects on the broader ### When considering this scenario, it is important to analyze the effects on the broader economy and financial system. ### Effects on banks’ funding and macro-financial implications - Scenario depends on two core assumptions: (i) which government payments are conducted in DT, and (ii) duration money stays in the DT system before being deposited into bank accounts. - Extreme scenario: all government payments made in DT. - Predicted government expenditure: around 24 trillion Tenge ($54 billion) in 2025. - Reference: as of May 1, 2024, current accounts and deposits in banks amounted to around thirty trillion Tenge of which individuals deposited around 60 percent. - Implication: government expenditure is a sizable amount of money that banks would lose as deposit funding and hence would need to adjust for. ### Feasibility of “colored money” (programmable, restricted-use DT) - Requires important external resources and commitment of stakeholders. - Oracle node responsibilities: - Validate pre-defined conditions of payments. - Under responsibility of a government entity to build and maintain a list of authorized contractors for specific projects or sectors. - Additional requirements: - Build a portal to the DT platform for defining agreement terms, registering contracts, and managing reputational systems that update restriction lists. ### School voucher pilot impacts - Current school voucher scenario already piloted would not have any material impacts for the broader economy and financial system. - Rationale: - School voucher program does not involve large amounts of money and thus would have limited effects on banks’ funding. - Note: Expansion of use cases would warrant further careful analysis. ### VAT Deduction and split-payment use cases - VAT Deduction scenario: - Tests automated deduction of VAT from a purchase at a merchant using a smart contract. - Process: merchant generates a special QR-code; user reads QR-code and confirms payment; VAT amount automatically calculated; two transactions performed (customer to merchant; VAT amount to tax authority). - Limitation: cannot easily extend beyond simple physical transactions due to complex fiscal rules and processes (e.g., legal entities pay tax after netting collected and due VAT on a periodic basis). - Split payments benefits and trade-offs: - Benefits: - Enhanced compliance and reduced tax evasion by directly channeling VAT portion to tax authorities. - Increased transparency. - Automation reduces businesses’ administrative workload for VAT calculation, collection, and payment. - Minimizes human errors, leading to more accurate tax collections. - Challenges: - Complexity of setting up the system and ensuring correct taxation of goods and services should not be underestimated. - Triggers significant changes in cash flow: - Tax authorities: positive cash flow impact because VAT payment happens in real-time per transaction rather than periodically. - Businesses: negative cash flow impact, directly affecting working capital. ### Additional use cases: Offline and crypto assets - Offline capabilities: - Considered longer-term opportunities to support digitally and financially excluded populations. - Existing solutions are immature for production. - Integration with crypto assets (e.g., crypto cards): - Requires careful consideration aligned with the broader regulatory approach around crypto assets in Kazakhstan. ### Reviewing experimentation — pilot analysis - Authorities have undertaken a wide range of experimentation since 2021 including proofs of concepts, prototypes, and pilots. - Pilot analysis focused on the limited production loop (main piloting work) and considerations for scaling experimental loop work into pilots. - Pilot analysis aimed to cover three elements: - (i) assessment of how the current pilot supports DT’s overall objectives; - (ii) considerations for a long-term evaluation and monitoring framework; - (iii) areas to develop stakeholder engagement. - Technical feasibility considered alongside policy evaluation; IMF did not opine on the best technical solution. - Stated objectives for DT include: - (i) modernization of the national payments system; - (ii) increasing the efficiency of state-related payments; - (iii) increasing innovation, efficiency, and competitiveness of the domestic financial market. - Observations on the 2023 pilot: - Successful in terms of near-term goals stated, but metrics did not clearly map to overall DT objectives. - Stakeholders had differing views about key DT objectives and could not clearly define how pilots (DT-linked cards or digital school vouchers) would support transparency in government payments. - No significant efficiency gains in retail transaction speed or cost from industrial loop experimentation; better potential noted in government payments. - Programmability and automation aspects have not been a focus of experimentation to date and remain at a much earlier stage (proof of concept or prototype). - Financial inclusion: - Not a focus of the 2023 work. - Latest available statistics suggest around 19 percent of the population may still be reliant on cash. - Digital vouchers were accessible to all school children in the pilot but had no direct interaction with DT balances. - DT-linked cards were only open to NPCK staff and required a bank account. - Pilots limited to Almaty region; no rural testing to date. NPCK intends to continue exploring offline functionality long-term. ### Evaluation and monitoring framework (building blocks) - Purpose: provide a benchmark to measure long term progress of DT; monitor short- and long-term goals; enable reassessment if divergence from goals occurs. - Clear prioritization of policy objectives helps define which use cases to pursue and monitor. - Emerging priorities from discussions: - Targeting government spending/transfer use cases (transparency and efficiency of government payments). - Providing DT as an alternative means of payment (improving competitiveness and efficiency of domestic financial market). - Pilot considerations: - Could be dynamic in its evaluation; test economic design and governance of DT platform. - Technical metrics (success and failure rates) have been tested; need to understand how functionality, rules, governance, and user behavior interact. - Consider testing incentives for users to assess adoption drivers. - Expand sample sizes and systematically evaluate design deviations from baseline. - Technical trade-offs: - NPCK core DT project team recognizes required principles: reliability, availability 365/24/7, flexibility, interoperability, safety, scalability, confidentiality. - Design choices impact performance, use case support, and operational risks (loss of confidentiality, degraded performance). - Pilots revealed meeting security/confidentiality pressures platform scalability; underlying technology has not yet fully solved this. - NPCK must determine tradeoffs in the Decentralization–Scalability–Security trilemma and proceed on a risk-based approach. - Table 3: Factors for an evaluation framework (components and aims) - 1. Objectives - What does DT hope to achieve and why? - 2. Use Cases - How is DT then used to reach such objectives? - 3. Platform capability - What sub-functionality is needed from the platform to support the use cases? Includes considerations around access, limits, onboarding, participation and security and resilience requirements. - Set a baseline design and consider ‘deviations’ to test. - May also consider building in automated reporting requirements to support elements 4–7 below. - 4. Potential measures of “success” - What would DT need to demonstrate to say the objective is being supported? Consider both quantitative and qualitative measures and short-term and long-term measures. - What would be the practical benefits to stakeholders? - Should be closely tied to all elements of 1–3 above. At the piloting stage, measures of success may be different to production. - 5. Evaluation and monitoring tools - What reporting requirements and data pieces do I need to collect to monitor measures of success? - Which can I measure immediately or continuously; which are periodic? - In production can authorities directly collect data? Are external parties required? - 6. Governance reporting - Who should review the evaluation data: Central bank only? Plus, regulator? - Outline government’s role and consider industry interaction and engagement. - For transparency the central bank may commit to periodic reporting in production. - 7. Evaluation timeline - Under what timeline are measures of success reviewed? Should foreshadow the rollout timeline. - 8. Forecast rollout timeline - What are the target launch dates for specific use cases? ### Developing stakeholder engagement - Observations: - NBK and NPCK have published several papers on DT, but stakeholder awareness and engagement remain relatively low. - No responses received to the last public call for feedback. - External stakeholders focused on near-term implementation or public spending use cases; many have more to understand about objectives and implications for their businesses. - E-money firms have not been engaged. - Businesses, merchants, and citizens have been less of a focus in engagement. - Internal engagement: - Current governance structure involves the NBK Payment Systems Department, NPCK teams, and executive level of the NBK. - Many important departments (currency management, monetary operations, monetary policy, financial stability) have little formal opportunity to reflect on design decisions. - Regulators had not considered impacts (operational or prudential) on the relevant STBs from DT; cooperation will be critical going to production phase to ensure no gaps in oversight and supervision. - If DT will support asset or securities tokenization, or connect with crypto assets, a coherent approach from all regulatory agencies involved will be required. *IMF Technical Assistance Report – Kazakhstan* ### 88. Despite prioritization of public procurement use cases, government departments seem to ### 88. Despite prioritization of public procurement use cases, government departments seem to be disengaged. The mission noted government departments were unable to comment on DT, or the potential benefit for government spending use cases. ### Stakeholder engagement and government involvement - Paragraph 88: Government departments were unable to comment on DT or the potential benefit for government spending use cases. - Paragraph 88: DT would only be a mechanism for the transfer for such use cases; determining the fiscal policies would be out of scope for a central bank. - Paragraph 88: Public procurement cases being explored would require substantive commitment from relevant government departments in terms of operational input such as digitalization of existing registries. - Paragraph 89: Pre-production, regular and structured interaction with stakeholders on DT needs to be in place to build public and institutional awareness. - Paragraph 89: Interaction formats recommended include focus groups/forums and bilateral engagement to balance group needs and enable franker conversations. ### Institutional capacity and governance recommendations - Paragraph 90: The NBK should establish a Taskforce, Committee or strategic forum representing all NBK departments and NPCK to act as a central coordinating point to refine a common vision of DT and oversee economic and operational assessment as DT moves to production. - Paragraph 90: ARDFM would have a role to support analyses and discussion on a regular basis to ensure coherent analysis across departments and monitoring of private sector participation. - Paragraph 91: The NPCK could establish a technical board with STBs to support operational and technical management aspects of the DT platform, ensure standards, coordinate updates, and provide a forum for core participants and distributors to raise challenges and feedback. - Paragraph 92: The NPCK should assess which use cases are feasible relative to the existing and forecasted technical capacity of the platform. - Current DT platform is based on Corda DLT and delivers tokenization, programmability, and transaction confidentiality (if some performance-degrading fixes are put in place). - More stress tests and long-term operation simulations are needed to confirm medium/peak throughput and overall scalability. - If more demanding use cases are targeted, NPCK should understand risk tolerance for potentially exceeding capacity; targeting low volume use cases or managing adoption rate may be strategic short- and medium-term decisions. - Failure to meet more demanding scenarios could transform into reputational risks for DT in the long run. - Paragraph 93: NBK and NPCK need to maintain flexibility/extensibility in DT design and ensure a clear decision-making process for changes. - Example: Ensuring ISO20022 compliance to support interoperability, particularly across borders. - Governance structures (cross-Bank taskforce and technical board) should play core roles in decision-making for design changes. ### Use-case analysis and macro-financial implications - Paragraph 94: NBK departments, supported by regulators, should conduct a baseline assessment of DT impacts from use cases targeted for end-2025 and undertake further periodic economic assessments as use cases materialize. - Uncertainty around viable use cases and potential DT demand complicates macro-financial implications assessment. - Analytical and operational teams, with stakeholders, should examine demand and implications for banks—both in aggregate and individually—across scenarios. - If G2P, cross-border, and wholesale payments remain focal for 2025 experimentation/piloting, an ex-ante economic assessment of demand for these scenarios is essential. - Assessment should be periodically updated to cover a wider spectrum of participant behaviors and consider impacts on commercial bank credit and monetary policy implementation as design is revised. - Paragraph 95: Clarify scope and ambition of government transfers with DT to enable stakeholders to make proper estimations and scenario analysis. - Current uncertainty has prompted many stakeholders to adopt a “wait and see” approach. - Government use cases could be implemented and scaled quickly if relevant parties find DT appropriate. - Government stakeholders need to increase engagement and input into use case ideation. - Paragraph 96: NBK and NPCK should continue to reflect on cross-border implications of CBDC through future design revisions. - Current DT design may minimize macro-financial impacts from cross-border use cases, but widening participation or expansion of viable use cases may change this assessment. - NPCK could engage proportionately with ongoing cross-border experimentation to understand emerging practices and DT system requirements for cross-border interoperability. - Improving cross-border payments is a secondary objective; authorities may prioritize other objectives and use cases in the near term. ### Pilot development and evaluation - Paragraph 97: Forthcoming status report should update stakeholders on the roadmap for DT and key use cases prioritized for end-2025 to allow industry engagement and build a joint roadmap. - Tokenization efforts could be explored at lower intensity with a multi-year roadmap. - Paragraph 98: NBK and NPCK should place emphasis and resource on use cases centered around core objectives: efficiency, innovation, competitiveness of domestic market, and possibly financial inclusion. - Emphasize refining testing of DT-to-DT payments in real-world settings and two-way interoperability on demand (into DT). - Financial inclusion and accessibility should be factored in across use cases; offline use is challenging to test at this stage. - NPCK should engage with other central banks on emerging practices around providing offline services while maintaining strong security. - Paragraph 99: NBK and NPCK should incorporate monitoring of DT’s progress towards broad objectives within their evaluation and monitoring framework. - NPCK’s pilot reports provide comprehensive work overview but could be more closely tied to overall objectives. - An evaluation framework with clear criteria and tools will help reflect evidence of positive and adverse effects. - Paragraph 100: User education strategies should be designed to avoid misinformation risks and tested through future pilots. - A multi-faceted stakeholder engagement strategy with regular interaction with merchants and consumers is required ahead of production. - Consumer engagement should have started earlier, per hindsight from other central banks with live CBDC. - An information campaign towards the population in general could mitigate concerns and address perceptions around privacy and monitoring. - Paragraph 101: NBK and NPCK should account for less vocal voices (smaller banks, underrepresented user groups) in stakeholder engagement to understand wider implications and opportunities for DT. - Engage consumer and business groups and consider regional engagement. ### Cybersecurity and operational resilience: observations and DT-specific risks - Paragraph 102: Section introduces analysis of cybersecurity and resilience posture of payment systems in Kazakhstan with regard to DT entry; reviews policies, laws, procedures, guidelines, application to payment system security practices, DT pilot measures, and readiness for emerging threats such as AI and quantum computing. - Paragraph 103: NBK and NPCK align security practices to ISO 27001, NIST, and CIS. - NBK IT security team provides security services (i) horizontally through NBK internal security, and (ii) vertically to NPCK. - Takes into account requirements by the Ministry of Digital Development in Legislation 832. - Prior to last year, NPCK had been ISO 27001-certified for four years; a recertification is planned for next year. - NPCK explored OWASP, MITRE ATT&CK, and Corda Security Controls for DT cyber threat modelling. - Paragraph 104: Information sharing and incident response is fairly covered through ARDFRM FINCERT. - FINCERT processes cyber events from commercial banks’ security tools except for payment services, which are not covered by FINCERT. - It is a requirement for financial services participants to report security incidents to FINCERT regardless of incident severity. - Key challenges: scarce cyber expertise; ARDFRM recruits cyber talents from neighboring countries. - FINCERT is a member of FIRST but does not have external cyber intel/feeds from global cybersecurity industries/vendors. - FINCERT plans to enhance systems and processes through automation in two years’ time. - Paragraph 105: Cyber and privacy awareness levels are improving, but digital financial fraud remains a concern. - Survey results (Ministry of Digital Development, Innovation and Aerospace Industry (2023)) cited: population knowledge about using electronic digital signatures and protection of personal data increased from 77.4 percent (2022) to 80.4 percent (2023). - Study results: 91 percent gained knowledge about protecting personal information when using social networks; 85 percent are aware when using their electronic digital signature; 77 percent know about potential risks of children using the internet. - Commercial banks attribute fraud to lack of customer awareness, staff turnover, and internal fraud; some banks rely on data analytics and multi-factor verification for transaction authorization. - The regulator lacks separated resources for digital fraud; responsibilities are mixed with the information security team. - Paragraph 106: Concentration of payment services within one or two closed systems poses systemic cyber risk; networks like those built by Kaspi could be critical single points of failure. - Nation state hackers and criminal groups are identified threat sources. - Any successful cyber-attack or operational failure may pose material reputational risk for NBK and regulators. - Mission did not find exceptional/additional mechanisms to ensure more stringent oversight of systemically important firms (e.g., Kaspi) with respect to cyber resilience. - Paragraph 107: NBK and NPCK both have important roles in DT architecture and security environment. - NBK developed a DT security architecture and high-level security objectives (confidentiality, privacy, scalability, reliability). - NBK internal staff and internal control team reviewed initial DT source code and provided recommendations; NPCK applied corrective actions for identified vulnerabilities. - NPCK developed DT system and is responsible for implementing security measures and operations of DT pilot. - Despite choosing an open-source platform (Corda), NPCK or NBK did not commission a thorough, independent security assessment (such as a penetration test of DT) before “go-live” in the pilot phase. - Even in limited production, security assurance promotes trust among users, regulators, and stakeholders. - Trust in security and privacy was highlighted by commercial banks as an end-user adoption consideration. - Paragraph 108: NPCK’s information security threat and intruder modelling is a commendable first step and informs security decisions from the project’s early stages, increasing stakeholder confidence. *IMF Technical Assistance Report – Kazakhstan (excerpts, paragraphs 88–108)* ### 109. While some security requirements are in place, the development of the minimum-security ### Cyber Risk Management of Emerging Technologies ### Security requirements and readiness for the DT (paragraphs 109–111) - While some security requirements are in place, the development of the minimum-security requirements for DT is still underway. - Without specific and approved security standards and requirements there is a high risk of overlooking application of critical security measures in the DT. - Security requirements should guide design, development, and implementation and ideally be factored into the design and development phase so trade-offs with functionality can be considered. - Fixing vulnerabilities in later stages of the system development life cycle, such as production phase, is often very costly or ineffective. - The four commercial banks within the DT pilot were not subjected to a cybersecurity posture assessment to determine their readiness to participate in the DT pilot. - Market participants operating substantive parts of the DT platform (individual nodes for verifying and validating DT transactions) should undergo a security assessment of their IT environment to establish technical and non-technical cyber capabilities for DT operations. - Some market participants expect to change IT and cyber security practices to accommodate DT implementation, such as hosting DT nodes. - The NPCK acknowledges some commercial banks could face technical and cyber challenges to migrate and securely operate DT nodes in their IT environments. - The NPCK is planning to introduce a fee-based access model for commercial banks that will not have the necessary resources to operate and manage their own DT nodes. ### Open-Source Platforms and CBDCs (Box 2) - Open-source software allows users to freely inspect, modify, and distribute the code and has rapidly become the norm for DLT-based ecosystems. - Opportunities: - Promotes innovation, collaboration, and transparency. - Enables developers to contribute to and enhance software, often resulting in more robust and secure solutions. - State-of-the-art cryptographic implementations gain accuracy and robustness through open peer reviews. - Risks: - Open nature of code can make vulnerabilities more easily discovered and exploited by malicious actors. - A typical DLT product may incorporate code from tens or hundreds of open-source projects, exposing users to supply chain-induced vulnerabilities (such as backdoor malwares) if not carefully audited. - Lack of formal support and accountability for the code base (in some, though not all open-source platforms) can pose challenges in maintaining and securing systems. - Governance/operational considerations: - Governance and accountability for the security of code must be defined. - Strong internal capacity or securing (preferably local) contractors with such competencies is required. - Authorities should consider risk tolerance in line with the potential for CBDC to become a critical national infrastructure (CNI). - Claimed efficiency gains (lowering of costs) from open-source platforms may not be guaranteed because platform support is usually an additional cost that needs to be included in the CBDC business model and balance of incentives for private sector participation. ### Cyber risk landscape: AI, quantum, and sectoral preparedness (paragraphs 112–113) - Generative AI: - Could benefit the financial sector through improved credit risk monitoring, increased productivity and efficiency, enhanced virtual assistance and customer relationship management, and improved cybersecurity activities such as threat detection and incident response. - Can also amplify cyber risks such as social engineering attacks, data leakage, misinformation/disinformation. - The NBK is researching AI capabilities for detecting financial fraud and cybercrimes, including for the DT, and via the NBK Anti-Fraud center project based on AI, commercial banks will be required to share, exchange information and report suspicious transactions. - Quantum computing: - Quantum computers can break current standard cryptographic algorithms, including Rivest–Shamir–Adleman (RSA) and Elliptic Curve Cryptography (ECC). - These cryptographic standards underpin the security of DLT such as Corda, including securing transactions, establishing digital identities, and creating digital signatures. - Quantum computing could enable attackers to decrypt encrypted data, forge digital signatures, or impersonate legitimate parties within the network. ### Recommendations — Cybersecurity Risk Management (paragraphs 114–116) - ARDFRM FINCERT should enhance and expand operations towards a proactive cyber incident detection and response: - Consider subscribing to industry intel feeds to enhance monitoring. - Extend services and conduct regular cyber drills to build incident response capabilities and preparedness for cybersecurity experts in financial services. - Establish regular forums to raise cybersecurity and privacy awareness in the financial sector to combat digital fraud and discuss emerging threats. - Evaluate the organizational structure and role of FINCERT and provide resources to enhance financial services cyber incident management — capacity building, preparedness, monitoring, information sharing, and incident response activities. - Information security and digital fraud management should be separated organizationally but should closely work together. - ARDFM, NBK and NPCK should closely monitor cybersecurity and operational resilience of critical payment infrastructure with potential systemic cyber risk: - Review periodically the need for additional supervision and oversight for arrangements that may have systemic consequences (examples cited: Kaspi and Halyk Bank). - Further TA around systemic payment supervision may inform future actions. - NBK/NPCK should collaborate with stakeholders to build, upskill, and retain technology and cybersecurity expertise across protection of CNI, academia, research institutions, and the cybersecurity industry. ### Recommendations — DT Cyber and Operational Resilience Risk Management (paragraphs 117–119) - NBK/NPCK should assess, evaluate, and classify the DT against cyber and operational requirements for CNI. - NBK/NPCK should prioritize developing a set of minimum security and resilience requirements for the DT platform: - Guide design, development, operationalization or review of security and operational resilience. - Expand to mapping these requirements to market participants’ roles in DT at different levels. - Consider assessments against these requirements during handover of DT nodes to market participants to identify weak points where vulnerabilities may be exploited to disrupt DT operations. - Conduct thorough security testing of the DT’s security and resilience by an independent firm before an industrial-grade platform launch, and regularly in production: - Examples: e-Naira wallets (Nigeria) suffered technical glitches soon after launch in October 2022 forcing e-Naira offline; DCash (ECCU) went offline in Jan 2023 for two months following an expired digital SSL certificate in the Hyperledger Fabric software. - Cyber-related operational failures can cause security vulnerabilities and vice versa, resulting in cyber breach, undermined public trust, and reputational damage. - Third-party security and operational resilience testing can help identify overlooked DT vulnerabilities before full production and provide corrective actions on an ongoing basis. ### Recommendations — Cyber Risk Management of Emerging Technologies (paragraphs 120–121) - NBK/NPCK should develop a strategy to ensure financial market participants safely and securely adopt emerging technologies: - For AI: - Prioritize building capacity and awareness on opportunities and risks, oversight, and training of AI-driven activities. - Regulate for safe, secure and ethical use of generative AI. - Consider restricted use and access of generative AI to staff to mitigate risks related to unpreparedness in using, operationalizing, and integrating AI tools. - Build expertise and talent in data science, AI security and AI supervision to allow a proactive approach to harness generative AI for cyber defense strategies, including integrating generative AI with existing security tools. - For quantum computing: - Develop plans to migrate cryptographically-vulnerable computer systems to quantum-resistant cryptography. - Actively identify and monitor quantum-vulnerable cryptography in use within the financial system today and ensure a plan is created for migration to new systems. - Maintain an up-to-date inventory of digital assets alongside their cryptographic information. - Closely monitor updates from experts in the cybersecurity and cryptographic industry. *IMF Technical Assistance Report – Kazakhstan (excerpts, paragraphs 109–121)* ### Annex I. Lessons of wCBDC Experimentation ### Annex I. Lessons of wCBDC Experimentation ### Securities Settlement - Focus and purpose of experiments: - Most projects focus on how tokenized securities and tokenized wCBDC on the same platform can facilitate better delivery-versus-payment (DvP) settlement. - Experiments generally demonstrate positive results for technical feasibility. - Less focus is placed on overall merits compared with other options (including upgrading existing systems) and on technical and cyber resilience. - Many experiments assume high market demand for DLT-based and tokenized financial transactions; this demand has yet to materialize. - Notable projects and findings: - Project Helvetia (BISIH Swiss Centre, Swiss National Bank, and SIX): - Phase I demonstrated the functional feasibility and legal robustness of settling tokenized assets with wCBDC. - Phase II showed that a wCBDC can be integrated with existing banking systems. - Phase III is piloting real CHF wCBDC without the involvement of the BISIH. - Lessons for the DT project: - Integration with Existing Systems: value in learning from Project Helvetia’s experience in integrating wCBDC with existing core banking systems for smooth integration with Kazakhstan’s financial infrastructure. - Legal and Functional Feasibility: Project Helvetia’s comprehensive legal and functional exploration can guide DT’s approach to similar challenges. - PoC and Pilot Testing: structured phase-wise PoC and pilot testing methodologies can inform DT’s gradual realization approach. - Reserve Bank of Australia — Project Atom: - Developed a PoC for issuance of tokenized CBDC usable for funding, settlement, and repayment of a tokenized syndicated loan on an Ethereum-based DLT platform. - Demonstrated that digitizing syndicated loans on DLT could improve efficiency and reduce operational risk by replacing manual and paper-based processes. - Integrating a wCBDC on the same platform enabled “atomic” DvP settlement of drawdown, novation, and repayment. - South African Reserve Bank — Project Khokha 2: - Use of a single shared ledger with different access levels enabled greater oversight, easier reconciliations, and valuable real-time operational data. - Having both security and settlement tokens on DLT enabled DvP on a single network. - Porting the central bank’s settlement token across two platforms introduced challenges, e.g., separation between operational and legal settlement. - Concluded that DLT-created token-based wCBDC resulted in a riskless settlement asset on a platform that also serves as a payment settlement system and hosts settlement participants’ accounts as DLT wallets with the central bank. - Observed that the main benefits and challenges may stem from business process innovation enabled by DLT rather than the technology itself; roles and functions may be reduced but do not disappear, and existing regulatory frameworks would still apply. - Noted issuance of DLT-based tokens not defined in law and that modular platform designs may require framework updates. - Bank of Canada — Project Jasper (Phase 3): - Explored payments and settlements interaction within a distributed ledger framework, integrating with current market infrastructures. - Introduced Digital Depository Receipts (DDRs) for securities (CDS) and cash (Bank of Canada) onto the ledger, enabling securities settlements using central bank funds on the ledger. - Promising aspects: successful integration via a "loose coupling" approach; enforcement of independent token issuers' rules; participation restrictions via private ledger and doorman service; real-time ledger transparency for observers. - Introduced mechanism to extend credit to broker participants not part of the payment system, enabling access to cash DDR on the ledger — this reintroduced credit risk into a model that initially hoped to eliminate it. - Suggested that fully harnessing DLT benefits may require expanding the ledger’s scope to encompass additional assets and the entire trade and post-trade lifecycle; potential operational cost savings and reduced back-office reconciliation if broader ledger scope adopted. - Banque de France: - Launched a wCBDC program including an initiative with the European Investment Bank (EIB) and Société Générale – Forge to settle an EIB-issued digital bond with wCBDC. - Cross-cutting lessons for DT: - Adopting atomic settlements could enhance efficiency and security, minimize counterparty risks, and expedite settlement times. - Investigate privacy-preserving technologies to ensure user privacy without sacrificing scalability or system performance. - Ensure seamless integration with existing financial infrastructure. - Address regulatory and legal challenges from the outset for compliance and widespread acceptance. ### Tokenized Deposits - Emerging projects to observe: - Project Ensemble (HKMA, March 2024): - Launched to support development of the tokenization market in Hong Kong. - Seeks to explore FMI that will facilitate seamless interbank settlement of tokenized money through wCBDC. - Initially focuses on tokenized deposits (digital representations of commercial bank deposits); wCBDC as foundation for tokenized deposits used in tokenized asset transactions. - Project Agorá (BIS with seven central banks, announced April 2024): - Central banks involved: Bank of France (representing the Eurosystem), Bank of Japan, Bank of Korea, Bank of Mexico, Swiss National Bank, Bank of England, and the Federal Reserve Bank of New York. - Plans to partner with a large group of private financial firms convened by the Institute of International Finance (IIF). - Builds on the unified ledger concept and will investigate how tokenized commercial bank deposits can be seamlessly integrated with tokenized wholesale central bank money in a public-private programmable core financial platform. - Relevance to Kazakhstan: - Although stakeholders in Kazakhstan do not currently focus on tokenized deposits, observing outcomes from Project Ensemble and Project Agorá can be beneficial for long-term planning and design choices. ### Cross-Border (Wholesale) - Focus of experimentation: - Significant experimentation has explored how wCBDCs can address challenges and deliver benefits in international finance. - Key cross-border projects and achievements: - Project Jura (BIS, Banque de France, Swiss National Bank): - Focused on cross-border settlement of wCBDCs. - Tested the feasibility of using DLT to transact two distinct wCBDCs. - Key innovations: deployment of digital currencies on third-party platforms; mechanisms like subnetworks and dual-notary signing to facilitate secure and policy-compliant transactions. - Project Jasper-Ubin (Bank of Canada and MAS): - Explored use of blockchain for clearance and settlement of payments and securities. - Demonstrated linking two different blockchain platforms to facilitate real-time, cost-effective, and secure cross-border payments and direct currency exchanges without intermediaries. - Project Dunbar (BISIH with RBA, Bank Negara Malaysia, MAS, SARB): - Developed prototypes for shared platforms enabling banks in different countries to transact directly using multiple central bank digital currencies. - Demonstrated feasibility of a common platform for cross-border transactions using multiple CBDCs, potentially reducing reliance on intermediaries and improving efficiency and security. - Project mBridge (BISIH with central banks of China, Hong Kong, Thailand, UAE): - Aims to create a cross-border corridor network to facilitate international trade and investment through wCBDCs using DLT to simplify processes, reduce costs, and increase speed. - Has reached the minimum viable product (MVP) stage and is broadening international reach. - Additional experimentation: - Project Rialto (BISIH Eurosystem and Singapore Centers, in partnership with several central banks): - Explores improving instant cross-border payments using a modular foreign exchange (FX) component combined with settlement in wCBDC. - Addresses high costs, slowness, complexity, and liquidity/credit/settlement risks associated with current correspondent-bank FX services. - Explores an automatic FX settlement layer solution using wCBDC as a safe settlement asset deployable for interlinked instant payment systems or digital asset systems. - Lessons for Kazakhstan’s DT: - Consider potential benefits of establishing direct connections between different CBDC platforms or sharing platforms for streamlined cross-border payments. - International collaboration is necessary to address policy and regulatory challenges inherent in cross-border CBDC arrangements. *IMF Technical Assistance Report – Kazakhstan — Annex I.* ### Annex IV. Pilot Analysis: Further Detail ### Annex IV. Pilot Analysis: Further Detail ### Background and Approach - Pilot scope spanned three elements: - 1) an assessment of how the pilot supports DT’s objectives, - 2) considerations for a long-term evaluation and monitoring framework, - 3) areas to develop stakeholder engagement. - Methods used by the mission: - Questionnaires sent ahead of the TA addressing project status, experimentation, capacity and motivation. - Brainstorms, desk review and discussions with authorities to reflect on internal aims and DT objectives. - Stakeholder mapping and sequential discussions: first phase focused on DT objectives and stakeholder mapping; second phase addressed 2023 experiments and external factors. - Stakeholder interviews with: commercial banks within the pilot, payment and financial industry stakeholders including card schemes and the Kazakhstan Stock exchange, pilot users and NPCK teams. - Time and project milestones explicitly noted: - Testing of DT use cases since 2021. - NPCK’s first real-world pilots launched in November 2023. - Target of a “fully operational” platform in end-2025. ### Experimentation to Date - Piloting approach and platforms: - Limited production (industrial loop) deployed on Corda DLT. - A second platform (R&D circuit / “experimental loop”) created for research, testing cross-border payments, issuance of DT-backed stablecoins and tokenization of securities, and to support DT Ideathon 2022 winners. - Use cases tested in the industrial loop (first real-world pilots launched November 2023): - Digital voucher for school meals. - CBDC-linked cards for payments in-store and online. - Experiments undertaken: - Figure A.1 summarized 8 scenarios and their specific aims/objectives (Figure referenced in source). - Technical validation and scalability caveats: - Pilot validated technological feasibility of transfers across P2P, P2B/B2P, G2P/P2G, G2B/B2G modalities, but identified challenges around scaling these use cases for operational deployment by end-2025. - Detailed operational outcomes for CBDC-linked card pilot: - PoS transactions: 100 percent rate of success. - Online purchases: 87 percent success rate. - ATM withdrawals: 82 percent success rate. - Pilot period lasted around one month. - Variations tested: immediate conversion to fiat on payment via card networks; some variations tested true DT transactions and differing integration with banks’ mobile applications (e.g., some users could not see DT balance in their app). - Operational issues noted: technical difficulties consistent with full fiat payments for online purchases; ATM withdrawals affected by mixed integration efforts and insufficient user DT balances. ### Assessment of DT Objectives - Authorities’ stated and mission-inferred DT objectives: - Improving the efficiency of payment infrastructure and competitiveness of the domestic financial market. - Improving payments with government participation. - Digitalization/modernization of payment infrastructure including enabling further innovation. - Better cross-border payments. - Enhance financial inclusion. - Key motivations and priorities identified: - Drive efficiencies around cost, increase competitiveness and transparency in the market. - Government payments focus driven by desire to improve transparency of government funds and tackle corruption (mission used “abstraction laddering” to surface motivations). - Authorities noted high cost of payments and concentration of payment services as problems DT could mitigate. - Mission assessment of alignment between experiments and objectives (summary of Table A.1, mission assessment as at June 2024): - Industrial Loop — Digital Vouchers: no clear match to Efficiency & competitiveness; no clear match to Government payments; no clear match to Modernization & innovation; no clear match to Cross-border payments; no clear match to Financial inclusion. - Industrial Loop — CBDC-linked Card: no clear match to Efficiency & competitiveness; no clear match to Government payments; no clear match to Modernization & innovation; no clear match to Cross-border payments; no clear match to Financial inclusion. - Experimental Loop — R&D Issuance of Stablecoins (integration with crypto): no clear match to Efficiency & competitiveness; no clear match to Government payments; no clear match to Modernization & innovation; no clear match to Cross-border payments; no clear match to Financial inclusion. - Experimental Loop — R&D Issuance of Stablecoins (tokenized asset settlement): no clear match to Efficiency & competitiveness; no clear match to Government payments; no clear match to Modernization & innovation; no clear match to Cross-border payments; no clear match to Financial inclusion. - Experimental Loop — R&D VAT Deduction: no clear match to Efficiency & competitiveness; no clear match to Government payments; no clear match to Modernization & innovation; no clear match to Cross-border payments; no clear match to Financial inclusion. - Note: Circles and “—” used in original table to denote strength/no clear match; table reproduced conceptually per source text. Source assessment dated June 2024. - Mission conclusions on objective coverage: - Current limited production pilot demonstrates feasibility of integration but does not yet show clear efficiency gains (overall cost and speed of payments remain largely unaffected). - Digital voucher experiment demonstrated accountability for municipal funds for school meals, but unclear that DT was necessary for this use case without extrapolating to bring out DT-specific functionalities. - Asset and securities settlement efficiencies remain unclear to authorities and external stakeholders; regulators had not been engaged on the use of stablecoins for settlement — recommended as a longer-term priority given time constraints. ### Evaluation and Monitoring - Rationale: - Evaluation and monitoring support reflection in pre-production (identify critical changes and gaps) and production (monitor progress, provide transparency). - Very few central banks have reached production; most rely on reports and white papers. - Proposed evaluation framework elements (as presented in report): - Tie evaluation to DT objectives overall. - Break objectives into use cases and capability/functionality to define “what” is evaluated. - Define criteria for success (success measures). - Specify measurement tools. - Set an evaluation timeline. - Establish governance and reporting: identify key decision-makers, who needs consultation, and who should be informed. - Illustrative application of framework to two DT objectives: - Transparency and traceability in government spending: - Use cases: procurement and social benefits (G2B and G2P functionality; programmability required). - Forecast rollout could phase use cases (e.g., start with G2B in phase 1, G2P in phase 2). - Example evaluation criteria: “X percent” reduction in the cost of delivering government payments (measured directly by government finance divisions); qualitative survey measures of citizen trust/confidence in procurement. - Improving efficiency and competitiveness: - Focus on retail DT-to-DT payments and use cases enabling everyday payments by individuals and businesses (P2P, P2B, B2P). - Require interoperability between DT, commercial bank money and cash. - Forecast rollout could start with P2P. - Example evaluation criteria: share of end-users paying with DT at six months, one year, two years; merchant costs for accepting payment types (requiring merchant cost surveys); monitoring DT-to-DT transfer volumes and platform performance relative to existing payments. - Interoperability monitoring and pilot evidence (Table A.2 summary, source: mission elaboration based on pilot as at June 2024): - DT → DT: DT platform or intra-bank node. Only intra-bank node tested in 2023 pilot. - DT → Commercial Bank Tenge: Tested via card payment (redemption to commercial bank node then sent over card rails). - DT → Cash: Tested via card use at ATM (redemption to commercial bank node then withdrawn). - Commercial Bank Tenge → DT: Not tested in 2023 pilot. - Commercial Bank Tenge → Commercial Bank Tenge: Existing intra-bank, interbank systems and card transfers. - Commercial Bank Tenge → Cash: Withdrawal at bank branch or ATM. - Cash → DT: Not tested in 2023 pilot. - Cash → Commercial Bank Tenge: Deposit at bank branch or ATM. - Cash → Cash: P2P physical transfer or post. - Data and behavioral monitoring recommendations: - Extend existing card pilot to collect further data on flows into/out of CBDC and types of users to better analyze economic implications. - Collect motivations and attitudes via surveys to understand adoption drivers. - Test two-way interoperability to observe dynamics when CBDC is bi-directional. ### Reflections on Stakeholder Engagement - Challenges in early-stage end-consumer engagement: - Low awareness and misinformation about CBDC. - General consultations on CBDC usefulness tend to yield limited insight; recommended focus on smaller samples, focus groups and case studies. - Engagement guidance and formats (summary of Table A.3: considerations of formats for external stakeholder engagement): - Open Questionnaire / Call for Feedback (Mixed): - Conducted by central bank; broad or focused content; commonly online or postal; risks of self-selection bias; less informative past early-stage ideation unless very focused. - Targeted Questionnaires (Mixed): - Outsourceable; bespoke design with central bank; suitable for representative samples; multiple formats (phone, in person, online). - Payment Diaries (Mixed): - Gauge actual behaviors; useful at early stage; high intensity so smaller samples; require representativeness to infer population patterns. - Interviews (Qualitative): - Cover different user groups; best for commercially sensitive info; best done in person for depth; central bank can leverage branch network for geographic representation. - Focus Groups (Qualitative): - Convened by central bank or partners; periodic use to assess changing perspectives; segment users to capture differences; firms may be less vocal on commercially sensitive views. - Forums (Qualitative): - Periodic, moderate central bank involvement; can target distinct stakeholder groups; formalized and publicizable for transparency. - Behavioral Experiments or Trials (Mixed): - High central bank involvement; target research gaps or specific feature viability; require clear evaluation goals. - Engagement content recommendations: - Focus on pain points in payments and financial landscape rather than on abstract CBDC acceptance. - Use payments diaries and merchant/bilateral engagements to surface operational needs and differences across business types. - Governance and government engagement: - Central banks benefit from formalized internal governance that includes accounting, monetary operations and communications units to avoid gaps and unmanaged trade-offs. - Mission recommended establishing a cross-Bank taskforce to prepare for holistic monitoring of DT in production. - Formal engagement with government stakeholders via memorandums of understanding or joint taskforces can improve transparency on DT decision-making and distinguish central bank independence issues; such structures can enhance cross-government engagement (Ministries of Finance and ministries covering digital issues, tax authorities, other fiscal transfer authorities). - Trade-off noted: additional governance structures reduce agility, but clear roles and responsibilities from the outset can be beneficial; emerging prioritization of government use cases in Kazakhstan increases case for formalized government engagement. *Source: Annex IV. Pilot Analysis: Further Detail (mission team elaborations and assessments as presented in the source PDF).* ### References ### References ### Central bank CBDC experiments, design papers, and country reports - Banque de France (BdF). 2021. “Wholesale Central Bank Digital Currency Experiments with the Banque de France: Results and Key findings,” November, Banque de France. Accessed at: https://www.banque-france.fr/system/files/2023-08/Banque_de_France_stabilite_financiere_rapport_mnbc_0.pdf - Banque de France (BdF). 2023. “Wholesale Central Bank Digital Currency Experiments with the Banque de France: New Insights and Key Takeaways,” July, Banque de France. Accessed at: https://www.banque-france.fr/en/financial-stability/financial-stability-mandate/supporting-digital-transformation-financial-sector/wholesale-mnbc - Bank of Canada (BoC). 2022. “Jasper Phase III: Securities settlement Using Distributed Ledger Technology,” October, Bank of Canada. Accessed at: https://payments.ca/sites/default/files/2022-09/jasper_phase_iii_whitepaper_EN.pdf - Bank of Canada (BoC) and Monetary Authority of Singapore (MAS). 2019. “Jasper-Ubin Design Paper: Enabling Cross-border High Value Transfers Using Distributed Ledger Technologies,” Monetary Authority of Singapore. Accessed at: https://www.mas.gov.sg/-/media/Jasper-Ubin-Design-Paper.pdf - Reserve Bank of Australia (RBA). 2021. “Project Atom: Exploring a Wholesale CBDC for Syndicated Lending,” Reserve Bank of Australia. Accessed at: https://www.rba.gov.au/payments-and-infrastructure/central-bank-digital-currency/pdf/project-atom-report_2021-12.pdf - South African Reserve Bank (SARB). 2022. “Project Khokha 2 Exploring the implications of tokenization in financial markets,” South African Reserve Bank. Accessed at: https://www.resbank.co.za/content/dam/sarb/publications/media-releases/2022/project-khokha-2/Project%20Khokha%202%20Full%20Report%206%20April%202022.pdf - NBK. 2022b. “White Paper 2022. Results of feasibility study of introduction of Digital Tenge.” National Bank of Kazakhstan. Astana, Kazakhstan. Accessed at: https://nationalbank.kz/en/page/Digital-Tenge - NBK. 2023. “Status Report. Digital Tenge: implementation plan for Phase One.” National Bank of Kazakhstan. Astana, Kazakhstan. Accessed at: https://nationalbank.kz/en/page/Digital-Tenge - National Bank of the Republic of Kazakhstan (NBK). 2021. “Report on the Results of the Digital Tenge Pilot Project.” National Bank of Kazakhstan. Astana, Kazakhstan. Accessed at: https://nationalbank.kz/en/page/Digital-Tenge ### International organizations, frameworks, surveys, and policy principles - Bank for International Settlements (BIS). 2024. “Generative artificial intelligence and cyber security in central banking.” BIS Paper No. 145. May 2024. Bank for International Settlements. Basel, Switzerland. Accessed at: https://www.bis.org/publ/bppdf/bispap145.pdf - CPMI. 2020. “Enhancing cross-border payments: building blocks of a global roadmap,” Stage 2 report to the G20. Bank of International Settlements, Basel, Switzerland. - CPMI-BISIH-IMF-WBG. 2022. “Options for access to and interoperability of CBDCs for cross-border payments,” report to the G20. Bank for International Settlements. Basel, Switzerland. - Financial Stability Board (FSB). 2020. “Enhancing Cross-border Payments,” Stage 1 report to the G20. Basel, Switzerland. Accessed at: https://www.fsb.org/2020/04/enhancing-cross-border-payments-stage-1-report-to-the-g20/ - Group of Seven (G7). 2021. “Public Policy Principles for Retail CBDCs.” UK Government - HM Treasury. London, United Kingdom. Accessed at: https://www.gov.uk/government/publications/g7-public-policy-principles-for-retail-central-bank-digital-currencies-and-g7-finance-ministers-and-central-bank-governors-statement-on-central-bank - Group of Central Banks. 2023. “Central bank digital currencies: ongoing policy perspectives.” Bank for International Settlements. Basel, Switzerland. Accessed at: https://www.bis.org/publ/othp65.htm - Iorio, Alberto Di, Anneke Kosse, and Ilaria Mattei. 2024. “Embracing diversity, advancing together - results of the 2023 BIS survey on central bank digital currencies and crypto” BIS Papers 147. Bank for International Settlements. Basel, Switzerland. Accessed at: https://www.bis.org/publ/bppdf/bispap147.htm - European Central Bank. 2023. “Digital Euro Progress report.” European Central Bank. Frankfurt, Germany. Accessed at: https://www.ecb.europa.eu/euro/digital_euro/timeline/profuse/shared/pdf/ecb.degov230424_progress.en.pdf?28e7a7087d6aded2065608aff7663e54&28e7a7087d6aded2065608aff7663e54&28e7a7087d6aded2065608aff7663e54&28e7a7087d6aded2065608aff7663e54 - Swift. 2024. “Connecting digital islands Swift CBDC sandbox project – Phase 2,” Results report March ### IMF and IMF-related fintech notes, working papers, and guides - Bossu, Wouter, Masaru Itatani, Catalina Margulis, Arthur Rossi, Hans Weenink, and Akihiro Yoshinaga. 2020. “Legal Aspects of Central Bank Digital Currency: Central Bank and Monetary Law Considerations.” Working Paper WP/20/254. International Monetary Fund. Washington, DC. Accessed at: https://www.imf.org/en/Publications/WP/Issues/2020/11/20/Legal-Aspects-of-Central-Bank-Digital-Currency-Central-Bank-and-Monetary-Law-Considerations-49827 - Soderberg, Gabriel, John Kiff, Marianne Bechara, Stephanie Forte, Kathleen Kao, Ashley Lannquist, Tao Sun, Herve Tourpe, and Akihiro Yoshinaga. 2023. “How Should Central Banks Explore Central Bank Digital Currency? A Dynamic Decision-Making Framework.” IMF Fintech Note 2023/008. International Monetary Fund, Washington, DC. Accessed at: https://www.imf.org/en/Publications/fintech-notes/Issues/2023/09/08/How-Should-Central-Banks-Explore-Central-Bank-Digital-Currency-538504 - Tourpe, Herve, Ashley Lannquist, and Gabriel Soderberg. 2023. “A Guide to Central Bank Digital Currency Product Development: 5P Methodology and Research and Development.” IMF Fintech Note 2023/007, International Monetary Fund, Washington, DC. - Reslow, André, Gabriel Soderberg, and Natsuki Tsuda (2024), “Cross-Border Payments with Retail Central Bank Digital Currencies: Design and Policy Considerations,” IMF Fintech Note 2024/002 - Patel, Manisha, Safari Kasiyanto, and Andre Reslow. 2024. "Positioning Central Bank Digital Currency in the Payments Landscape,” IMF Fintech Notes 2024/006 - International Monetary Fund (IMF). 2024. “Republic of Kazakhstan: Financial System Stability Assessment.” Country Report No. 24/48. IMF. Washington, DC. ### Kazakhstan-specific and national sources - Central Bank of Nigeria (CBN). 2023. “Economics of Digital Currencies: A Book of Readings.” Central Bank of Nigeria. Abuja, Nigeria. Accessed at: https://www.cbn.gov.ng/Out/2023/RSD/Economics of Digital Currencies.pdf - Ministry of Digital Development, Innovation and Aerospace Industry. 2023. “The level of public awareness of threats to information security (cybersecurity and personal data protection).” Astana, Kazakhstan. Accessed at https://www.gov.kz/situations/642/1346?lang=en - Ministry of Justice of Kazakhstan. 2016. “The Legal information system of Regulatory Legal Acts of the Republic of Kazakhstan, on approval of uniform requirements in the field of information and communication technologies and information security.” Dec 2016. Accessed at: https://adilet.zan.kz/eng/docs/P1600000832 - Mastercard. 2023. “Cybersecurity Landscape in Kazakhstan & Global Best Practices” Commercial Law Development Program Office of the General Counsel United States Department of Commerce. March 2023. Accessed at https://cldp.doc.gov/sites/default/files/2023-04/Cihan%20Salihoglu%20Kazakhstan%20Cyber%20Threat%20Landscape%20Trends.pdf - Margulies, Ben. 2022. “The ECCB’s DCash outage: what went wrong?” Article. Central Banking. Accessed at: https://www.centralbanking.com/central-banks/currency/digital-currencies/7935971/the-eccbs-dcash-outage-what-went-wrong?? - United Nations. 2021. “Demographic Yearbook.” 72nd Issue. United Nations, New York, United States. Accessed at: https://unstats.un.org/unsd/demographic-social/products/dyb/dyb_2021/ - The World Bank Group (WBG). 2021. “Findex Database.” Accessed at: https://www.worldbank.org/en/publication/globalfindex ### Cybersecurity, quantum risk, and safeguarding CBDC systems - The United States White House. 2022. “National Security Memorandum on Promoting United States Leadership in Quantum Computing While Mitigating Risks to Vulnerable Cryptographic Systems” Memorandum. The United States White House. Washington DC, United States. Accessed at: https://www.whitehouse.gov/briefing-room/statements-releases/2022/05/04/national-security-memorandum-on-promoting-united-states-leadership-in-quantum-computing-while-mitigating-risks-to-vulnerable-cryptographic-systems/ - The World Economic Forum (WEF). 2024. “Safeguard CBDC systems in the post-quantum computing age” Washington, DC. United States. Accessed at: https://www.weforum.org/agenda/2024/05/safeguarding-central-bank-digital-currency-systems-post-quantum-age/ *Source: tarea2026002-source-pdf - References (https://www.imf.org/-/media/files/publications/tar/2026/english/tarea2026002-source-pdf.pdf)* --- _Source: https://www.imf.org/-/media/files/publications/tar/2026/english/tarea2026002-source-pdf.pdf_