As part of the second phase of its central bank digital currency (CBDC) trials, the National Bank of Kazakhstan (NBK) has launched a project that uses a programmable digital tenge to pay for a railway to China.
NBK launched the first phase of its CBDC trials in late 2023, targeting local payments and cross-border transfers. According to the central bank, this pilot was a massive success, leading to an expansion of the use cases to include regional partnerships. China was a natural target as its digital yuan is one of the most advanced, and earlier this month, the two nations signed a deal to explore CBDCs jointly.
In the first implementation of this partnership, NBK announced recently that it’s using a programmable version of its CBDC to pay contractors building a railway to the border with China. The rail line connects Kazakhstan’s central region of Moyynty to Dostyk, another Kazakh town 836 kilometers away on the border with Xinjiang, China. Construction started in November 2022 and is expected to be completed next year.
The programmable digital tenge was assigned as payment for specific tasks or products and could only be released if these conditions were met. According to NBK, this allows the payer to maintain control of the funds and curb corruption or misuse.
“Thus, the marking technology reduces the risks of misappropriation of allocated funds and also helps ensure transparency and efficiency of public spending,” said the top bank.
NBK partnered with the country’s postal service Kazpost, the sovereign wealth fund Samruk-Kazyna, the national railways operator Kazakhstan Temir Zholy, and local lender Halyk Bank.
The central bank intends to expand the pilot to include other lower-tier banks and to involve other projects financed by the country’s national fund.
NBK has also partnered with the nation’s Anti-Corruption Agency to explore how a programmable CBDC can be used for targeted state spending in agriculture and other national projects.
While a programmable CBDC may be appealing in Kazakhstan, it has been heavily criticized in Europe and the U.S.
In the U.K., petitions from the public and legislators have forced HM Treasury to reiterate that “the government has no plans to program CBDC or restrict how money is spent.” The Bank of England (BoE) has also retracted proposals to allow programmability in some specific instances.
In the U.S., the critics are even more outspoken. Several legislators have opposed any attempts to make the digital dollar programmable, saying this would make it a tool for “surveillance, coercion and control” and terming it “the financial equivalent of the Death Star.”
Watch: Finding ways to use CBDC outside of digital currencies
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