Kazakhstan’s central bank may issue its own virtual currency

Central banks around the world are eager to issue digital currencies. Whether this will help introduce the concept of digital currencies to consumers remains to be seen, as consumers still prefer cash and credit card payments. While it has not yet been confirmed whether the Central Bank of Kazakhstan will issue its own virtual currency, there are signs that this idea may be much earlier than expected.

  Kazakhstan's central bank loses consumer trust

Like many struggling countries around the world, Kazakhstan's economic situation is closely tied to the US dollar. However, as the global economic downturn hits the stock market and oil prices fall, the tenge's exchange rate against the dollar fluctuates widely. To make matters worse, the tenge has become increasingly untenable over the past year.

The intervention of the Kazakh Central Bank will stabilize the situation somewhat, although rebuilding trust in the Tenge after three devaluations will be a considerable challenge. In addition, consumers already have little confidence in the central bank as financial troubles have had a significant impact on financial institutions.

Another problem is that the central bank no longer maintains reserves of the tenge. Eighty percent of the reserves held by consumers are in foreign currencies, including dollars, euros and other currencies. The same is true for companies and enterprises, whose foreign reserves are slightly lower, at around 60 percent. This is not a good sign for the future of the tenge, the currency in circulation in Kazakhstan.

As countries are trying to issue their own digital currencies, financial institutions are undergoing a conceptual change. Most people think that this move is profitable, and more and more people in the banking industry are beginning to advocate this move. The central bank can not only maintain full control over the money supply, but also guide the circulation of virtual tenge in the country.

However, the Kazakh central bank may postpone the decision until next year. The Russian central bank is said to be working on a plan to launch a virtual ruble, which is expected to be unveiled in June 2016. Neighboring countries are waiting for government officials to make a statement on this matter, and they will further wait and see about this initiative in the next few years.

The advantages of issuing a national digital currency are actually easy to explain: for consumers and businesses, transactions mean more convenience. For the Central Bank of Kazakhstan, they will not give up any control over financial power. In fact, by tracking every virtual tenge and its users, the central bank will become more powerful.

In addition, for countries such as Kazakhstan and Azerbaijan, entering the world of digital currencies will help diversify their economies. To date, these countries are still heavily dependent on oil exports and other natural resources, which has led to a serious single economic model. The emergence of virtual tenge will help banks solve these problems. However, it is still unknown what virtual currencies mean for the real world.