Last month, John Rolle, the Governor of the Central Bank of Bahamas, shared an update on the rollout of the Bahamas’ central bank digital currency (CBDC), known as the sand dollar, which went live in October last year.
The digital currency’s motivations are to promote financial inclusion, modernize the payment system, and make private wallet systems interoperable.
While the Bank centrally controls the core infrastructure for minting currency, the customer-facing aspect is primarily done by the private sector. So far, nine institutions have integrated their mobile wallet applications, including four money payment firms, three payment providers, a bank and a credit union.
At the Bank for International Settlements (BIS) Innovation Summit, Governor Rolle explained that the CBDC release was a gradual one that is still in progress. Since it first started piloting the digital currency in 2019, the need has increased following the bank branch devastation from Hurricane Dorian in 2019 and COVID-19.
In hurricane-prone areas, bank branches might take months to rebuild. It’s quicker to repair the antennae needed for digital payments.
However, there was already a desire for a digital currency to address financial inclusion. That’s because banks have been scaling back services and there’s a concern that remote island areas are now underserved. Rolle observed that it’s mainly an issue for payments.
Our interpretation is if ATMs are no longer available, the problem is less about the access to cash and more about the use of money to pay for stuff. Hence if cash is digital, the lack of ATMs is not such an issue, provided payments remain free as they are currently with the sand dollar.
The central bank Governor emphasized that a key goal of the Sand dollar was to make it accessible. The currency is not anonymous, so users have to go through standard bank-grade know your customer (KYC) processes. However, not everyone has a photo id that’s needed for a bank account. So a lower access tier only requires an email address or phone number, allowing balances of up to $500 and $1,500 in transactions per month. With full KYC, a person can hold up to $8,000 digitally.
There’s also a desire not to exclude based on technology, so the currency is available on a smart card, not just smartphones. That may also help with the elderly.
“We know we cannot afford to have any sort of exclusion based on age,” said Governor Rolle. At the other end of the age scale, kids often run errands and have pocket money, so they need to have access to digital cash. However, reading the proposals for digital currency regulation, minors have to get consent from their parents.
The combination of identity and minors also highlights the importance of privacy. The penalty for confidentiality breaches by wallet providers or others is $50,000 or up to three years in prison, or both.
Another key advantage of the digital currency is interoperability between mobile payment apps. However, initially the apps can allow users to use the Sand dollar within their walled garden. Going forward, the wallet providers will be required to allow balances to be transferred to other mobile wallets.
And the draft regulations include plans to take it a step further. Much like you have mobile number portability when you switch phone providers, the aim is to enable wallet portability. That way, a user can take their user id and unique account number when moving to another wallet.
One interoperability feature that is not quite there yet is with bank accounts. The Bahamas Automated Clearing House (the ACH) is being integrated so that transfers can be made between bank accounts and wallets in both directions. It’s expected to go live very soon.