The Bank of Jamaica has distributed $1.5m in central bank digital currencies to authorised institutions [from Global Risk Regulator].
While most of the big jurisdictions are still toying with the idea of central bank digital currencies (CBDCs), the Bank of Jamaica (BoJ) is ploughing ahead having delivered its first batch of its CBDC to deposit takers and payment services providers in a pilot exercise.
On August 9, the BoJ said it minted a total of J$230m ($1.5m) of its CBDC, which were distributed to authorised institutions as part of a pilot exercise that runs until December. The pilot was originally scheduled for May with no reasons given for the delay.
BoJ governor Richard Byles said the next step is to ensure widespread access and acceptance of the CBDC by taking them to the people. Finance minister Dr Nigel Clarke said CBDCs were important for the development of the digital economy and promised that the relevant legislation amendments would be in place before the end of the fiscal year.
Jamaican policy-makers believe CBDCs will drive financial inclusion and bring more efficient and secure payment systems
Jonathan Dharmapalan, CEO of eCurrency, the technology provider for the pilot, noted that Jamaica has the fastest-moving CBDC project in the world.
As in many developing countries, Jamaican policy-makers believe CBDCs will drive financial inclusion and bring more efficient and secure payment systems. They also see it as an opportunity for financial firms to improve their cash management processes. Another motive is that digitisation is seen as supporting the economic recovery from the Covid-19 pandemic.
Following a period of reflection, the BoJ decided back in May 2020 to push ahead with a CBDC as part of its reforms to retail payments.
A hybrid approach
In a statement on March 22, the central bank said its CBDC will only be for domestic use. In what is a hybrid approach, the central bank is distributing its CBDC to authorised financial institutions, which will then make them available to the retail market.
The two main types of CBDC model are: a wholesale one for use only by financial institutions, and a retail type where consumers can hold their funds in a digital wallet. This could even be hosted by the central bank. But with fears that this could disintermediate commercial banks and potentially increase their funding costs and even undermine financial stability, many authorities envisage digital wallets being hosted by commercial firms, such as banks.
To help drive financial inclusion, Jamaica’s authorities are making it much easier for consumers to obtain a CBDC account with simplified know-your-customer requirements. Individuals with bank accounts can automatically obtain a CBDC account and seamlessly transfer funds between them.
To use the CBDC, consumers have to download a digital wallet on a mobile device allowing them to carry out transactions at any time and can top up their balances through authorised agents and automated banking machines.
In its March statement, the BoJ said the issuance and distribution of its CBDC would be fully integrated with its real-time gross settlement (RTGA) system and would not compete with deposits in deposit-taking institutions. It rejected a blockchain solution in favour of technology that interfaces with the existing RTGS to smooth the introduction of a CBDC.
Other Caribbean jurisdictions are also embracing CBDCs, with the Bahamas having launched its sand dollar – a digital version of the Bahamian dollar – back in October 2020.
This article first appeared in The Banker’s sister publication Global Risk Regulator.
