Digital currencies are rapidly being institutionalized worldwide. For those who don’t know, digital currency is a currency that’s used exclusively in electronic form and accessed online. Cryptocurrencies like Bitcoin, which is widely used, are decentralized digital currency based on blockchain technology. There are now more than 10,000 cryptocurrencies in circulation.
Central banks worldwide are researching and looking to adopt Central Bank Digital Currencies (CBDC). According to Forbes Advisor, at least 80% of central banks are currently researching this technology. What is a CBDC? It’s a digital currency that’s issued and regulated by a nation’s central bank. For example, if Bitcoin were issued by the Federal Reserve and had the full backing of the US government, it would be a CBDC.
The Bank of Jamaica (BOJ) has joined other Caribbean and African nations preparing to adopt CBDCs. BOJ Governor Dr. Richard Byles recently announced that it expects to introduce a CBDC in 2022 to help improve the delivery of government services and increase financial inclusion for masses of Jamaicans.
Byles said that the challenges in the deployment of funds to beneficiaries under the multi-billion dollar COVID-19 Allocation of Resources to Employees (CARE) Program highlighted the need for the CBDC. “The simple act of trying to get government support out to those who were most in need became very difficult because many Jamaicans are not part of the financial network and also because a lot of the banking is still not digitized. I think that there is a greater need for financial inclusion and digitization of the Jamaican economy, and that is one of the issues that we hope to rectify with the CBDC,” he explained while addressing the Planning Institute of Jamaica’s Growth Inducement Program, annual Digital Economic Growth Forum.
The Jamaican CBDC will be inclusive and accessible to all stakeholders. It is expected to particularly streamline the welfare system and the distribution of all payments, allowing people to receive payments with an instantaneous credit to their account and have greater access to financial services without going to a building. BOJ officials said the bank also will benefit from a significant reduction in the cost of procuring and disbursing currency through local financial institutions. The digital currency will be fully accepted as a means of payment by all Jamaican financial institutions. It can be exchanged dollar for dollar with actual cash and is issued to licensed deposit-taking institutions (DTIs) on a wholesale basis. Consumers and businesses will be able to use the CBDC to pay for goods and services. Additionally, the BOJ said the CBDC is an opportunity for DTIs to improve cash management processes and reduce costs. However, the BOJ will continue to issue notes and coins to support economic activity.
The BOJ is conducting a seven-month CBDC pilot that began in May 2021 to December 2021, utilizing its Fintech Regulatory Sandbox. The Sandbox will provide a platform to encourage innovations in financial services, promote competition and financial inclusion, as well as assisting in the framing of new and existing regulations. Republic of Ireland-based tech provider eCurrency Mint Inc. is supporting the BOJ in testing the CBDC during the pilot phase and the full rollout in 2022.
The US also is looking into adopting a CBDC. The Federal Reserve and M.I.T. are conducting joint research through a digital currency initiative, Project Hamilton, on how a CBDC would work in the US and what kind of systems would be needed to implement it. They plan to publish their research publicly, and an open-source license for code is anticipated by the end of the year.
Meanwhile, the federal Office of the Comptroller of the Currency has issued an interpretation that clarifies the ability of community banks in the US to provide services to issuers of digital currency. Community bankers need to get busy educating themselves on the technology, stay abreast of developments, understand what policy decisions are made, and decide how they will integrate it into their product mix. Don’t let us be a day late and a digital dollar short.
