Some people are afraid of digital currency, while others are looking forward to it. Why do you think there are such polar opinions on this issue?
Zhanabil Davletbaev: In order to understand who is right and who is still wrong in their conclusions, you first need to understand what a digital catfish is. It is an additional form of the national currency of the country, which will be issued by the National Bank in digital form. Ordinary people won’t feel the difference when making payments with their e-wallets or funds stored in banks to personal accounts. After all, it is also a numerical expression of money. If you place a thousand soms in cash in a commercial bank account, they automatically turn into a thousand conventional calculation units, information about which is placed in the user’s electronic wallet and Internet banking.
If everything is so simple, why so many doubts? Are there any downsides though?
Zhanabil Davletbaev: I don’t see them. Another thing is that people have certain worries, it’s normal. There are risks, but more of a technical nature – power outages, internet failure, etc. There may be a misunderstanding regarding the exchange of paper tickets for digital soms. But I think it’s quite solvable and it won’t be difficult to find a compromise.
I want to remind you that attempts to create a certain means of payment have been made more than once. At one point, the countries of the North American continent wanted to launch the amero instead of the dollar. The single currency is often discussed on Eurasian Economic Union sites.
Zhanabil Davletbaev: As such, there will be no difference between paper and digital sums.
In 1969, the International Monetary Fund introduced the concept of a Special Borrowing Facility – SDR. This is a kind of basket of currencies, which gave the right to receive a loan and consisted of the currencies of five countries. 42% were in US dollars, 19% in German marks, 15% in Japanese yen, 12% in French francs and pounds sterling. Now it’s the dollar, euro, Chinese yuan, Japanese yen and British pound. SDR is essentially the same digital currency. And when you learn that a country has borrowed from the IMF, the contract will show the amount in SDRs. But for the convenience of perception by the ignorant, it will be announced in dollars at the rate at the time of signing the contract. This mechanism has always existed.
If, as you say, there isn’t much difference to the layman, then what’s the point of having a digital currency?
Zhanabil Davletbaev: This is the requirement of the time. In a number of countries – economic partners of Kyrgyzstan, the use of digital currency is being introduced. In particular, the Central Bank of Russia began its launch in test mode from April 1, 2023. This process is actively taking place in the PRC and a number of other states. There are differences between a digital currency and a traditional currency. One of them is a guarantee. Or rather, decide who is responsible for this asset. The digital som assumes that the National Bank will be responsible for its security in the same way that it is now responsible for the national currency. In other words, the regulator guarantees that the digital som can be exchanged for the currency of any other country. Its introduction will significantly simplify the entire financial system and speed up the circulation of money. There are also other positives. One of them concerns the savings made on the printing of tickets and the exchange.
Generally speaking, digital currencies were originally issued electronically by state central banks. They are usually stored in a single system controlled by the issuer. Also often referred to as digital currency is cryptocurrency issued by individuals because it is also in digital form. Illiquid money is just a digital accounting of existing paper money in a private system. For example, each bank has its own accounting for non-cash money. And the digital currency will be counted in a single system, where commercial banks will also participate in this system.
The som paper is backed by the trust of the people. And what about digital in that regard? And what are the chances of digital banks appearing in Kyrgyzstan?
Zhanabil Davletbaev: As such, there will be no difference between paper and digital sums. You just can’t put the latest in your wallet or feel it with your hands. It is clear that a certain group of people will perceive this negatively. These are questions of trust, of getting used to it. The digital som must have an appropriate site where it will be stored. I believe it will be a single platform for its accounting. The question of digital banks remains open. If they are needed, they will appear.
Will the role of commercial banks change with the introduction of digital currency?
Janabil Davletbaev: I don’t think so. They will serve, as now, as an intermediary between the National Bank and the population. That is, a certain amount of money in the form of a digital algorithm will be issued to commercial banks, and they, in turn, will distribute it to the population in the form of loans or through certain financial transactions.
What if people don’t want to use digital currency?
Zhanabil Davletbaev: If everything goes well, sooner or later confidence in electronic payments will increase, and then the problem – whether people want to use digital som or not – will go away by itself.
Can there be competition between cryptocurrency and digital?
Zhanabil Davletbaev: Most likely, yes, for example, exchange rate volatility. There is the concept of stablecoins – private cryptocurrencies tied to a specific currency. In fact, the digital som will be a stablecoin. But it is also important to understand that cryptocurrency is a risk that a person assumes, since the issuer is a private person and the digital som is issued by the National Bank and the regulator will be responsible for it. That is, a person has certain guarantees. As for international payments, it is still difficult to predict anything. Most likely, the achievement of large-scale transactions will be based on the trust of partners. I think we should not be afraid of the introduction of digital currency, especially at the state level.
key question
Some international experts fear that the introduction of digital currency will lead to control over society. What do you think about it?
Janabil Davletbayev | One can hardly speak of total control over society. Of course, there will probably be some leverage, but they are still there, since your potential cash in banks is also subject to control, including non-cash transactions. And now there are illegal operations: financing terrorist groups or laundering money from drug traffickers, arms traffickers. With digital currency, tracking the movement of funds will be much easier.
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