Kyrgyzstan to launch gold-backed stablecoin in Q3
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The central Asian nation of Kyrgyzstan intends to launch its new stablecoin later this year, one of the officials involved in its development has revealed.
The Kyrgyz government has been developing the USDKG stablecoin for months now as a solution to its financial inclusion and remittance challenges. At a recent digital asset event in Dubai, one of the project's advisors revealed that the stablecoin is set to debut in Q3.
USDKG will be backed by $500 million worth of gold at launch, which the government intends to expand to $2 billion. To account for any swings in the price of gold— which has gained 25%, or $650 this year—Kyrgyzstan will overcollateralize the stablecoin. The government also intends to conduct regular independent audits to maintain trust in the currency.
The new stablecoin will primarily target remittances, which play a prominent role in the country's economy. In 2024, Kyrgyzstan received $3 billion in remittances, with Russia at $2.7 billion dominating the sector. Kyrgyz residents paid an average of 8% in fees to receive the remittances (banks charge as much as 12%), higher than the global average of 6.6% and nearly thrice the UN-recommended 3%.
The Kyrgyz government believes that a national stablecoin can reduce the costs, increase access and reduce the complexities involved in the process.
The USDKG has taken precedence over the digital som, the country's CBDC. Last year, the country's central bank revealed that it had developed a demo version of the digital som and a few months later, proposed legal amendments that would pave the way for the CBDC's launch. Since then, it has not revealed any new developments on that front.
ECB launches innovation hub to test digital euro use cases
Elsewhere, the European Central Bank (ECB) has launched an innovation hub to test innovative use cases of its prospective digital euro.
The ECB first announced the initiative last October, inviting European financial industry stakeholders to submit applications by November 29. The regional bank has now selected 70 participants for the four-month hub, ranging from fintechs and banks to tech firms and academia.
Surprisingly, only four banks—CaixaBank (NASDAQ: CIXPF), Berenberg, Erste Group (NASDAQ: EBKOF) and Bank of Cyprus (NASDAQ: BKCYF)—joined the initiative. Other participants include German semiconductor giant Infineon and subsidiaries of software giant SAP, Tata Consultancy, KPMG and Accenture (NASDAQ: ACN). 'We welcome the huge amount of interest that market participants have shown in this exciting initiative,' commented Piero Cipollone, an ECB executive board member.
The platform will have two distinct workstreams: pioneers and visionaries. Under the pioneers' workstream, participants will limit their exploration to conditional payments and how the ECB can best develop technical standards to support them.
This workstream has 45 participants, including three of the four participating banks.
Companies in the visionaries workstream will focus on the bigger picture, including how the digital euro can solve societal challenges such as financial inclusion. They will organize workshops with the ECB to discuss how the central bank digital currency (CBDC) can be more accessible, easier to use and integrate into existing payment rails.
Visionaries will include the Italian university Politecnico di Milano, Erste Group Bank, German savings banks association DSGV and blockchain firm Exyond.
A few participants, like Tata Consultancy, German fintech firm PoMo Service and Spanish mobile payments service BIZUM, will be involved in both workstreams.
'The breadth and creativity of the proposals highlights the digital euro's potential as a catalyst for financial innovation in Europe, including the development of new solutions that further enhance the payment experience for Europeans and create market [opportunities],' Cipollone stated.
The ECB will publish a report with findings from both workstreams later this year.
The new initiative is the latest in the ECB's ongoing two-year CBDC preparations, which end later this year. While the regulator is committed to the project, the digital euro's fate lies in the hands of European legislators, who must pass new legislation that paves the way for the CBDC.
Speaking to one outlet recently, a spokesperson for the regional bank noted that CBDC legislation 'is still under discussion and we won't take a decision on issuing the digital euro before that process is complete.'
The latest initiative comes as CBDC interest globally has cooled down after a scramble that was sparked by Western fear that China's digital yuan would take over. However, since then, countries like the U.S. have rejected CBDCs, while others like Canada have stated that they are focusing on other, more critical financial innovations.
Watch: Finding ways to use CBDC outside of digital currencies
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