Digital Currency in JamaicaBy: Kris- Andrew Brown, Senior Portfolio Advisor Posted:
Digital Currency In Jamaica
The common perception of currency often comes in the form of paper money and coins. Currency by definition is a form of money, typically issued by a public authority, such as a central bank or government. It is used as a ‘medium of exchange’ for goods and services and is generally accepted at face value.
With the continuous technological advancements and innovations happening globally, we have entered a new era, a paradigm shift bringing forth the birth of Digital Currency.
Digital Currency is any currency that is available exclusively in digital/electronic form.
We have all heard of cryptocurrencies such as Bitcoin, Ethereum, and Dogecoin, a form of digital currency secured by cryptography. The decentralized nature of cryptocurrencies enables them to exist outside of central authorities or governments, thereby making them unregulated. In Jamaica, cryptocurrencies are not legal tender. The Bank of Jamaica (BOJ) does not issue, regulate, or supervise these forms of digital currencies.
Many companies such as Twitch, Newegg & Paypal accept cryptocurrencies as a form of payment. However, the unregulated nature and volatility surrounding cryptocurrencies have hindered mass acceptance as a form of payment globally.
Can Digital Currency become widely accepted with the introduction of Central Bank Digital Currency?
A central bank digital currency (CBDC) is a digital currency issued and overseen by a country’s central bank and deemed legal tender. In May 2020, as a part of the BOJ’s ongoing retail payments reform, a decision was made to venture into this digital innovation. The legislative review to amend the Bank of Jamaica Act to concretize BOJ as the sole issuer of CBDC is well underway. The intention is to have CBDC and physical notes co-exist in the payment space, thereby adding to the complement of banknotes and coins.
CBDC will operate similarly to physical money. It will be stored at face value, operate as a medium of exchange, a single unit of account, and a standard of payment. The only significant difference is that it is a cash alternative used primarily for transactions and will not attract interest when stored in any account.
Consumer access and use of CBDC
To use CBDC, consumers will need to have a CBDC account, which will be different from a regular bank account and much easier to obtain, with streamlined and simplified Know Your Customer requirements. Customers will be able to transfer and convert funds seamlessly between regular and CBDC accounts. As legal tender, CBDC can be exchanged on a one-for-one basis with Jamaican currency.
To carry out CBDC transactions anywhere and at any time, consumers will be able to access, download and deploy a mobile wallet app on any smartphone, tablet, or similar compatible device. Customers will also be able to top-up their accounts with CBDC through all authorised agents or smart ABMs and do business using CBDC phone-to-phone with merchants.
Advantages of CBDC for Consumers
Consumers will benefit from the convenience of a modern payment system that is seamless and secure. Individual consumers and businesses will also be able to take advantage of the greater financial inclusiveness that CBDC offers, as the “unbankable” will be able to access digital currency accounts more simply.
Why is the BOJ pushing to implement this CBDC?
The implementation of the CBDC will aid in increasing efficiency by removing the time and effort it takes to forecast currency needs and order new currency in advance. Digital currencies do not have any ‘wear and tear’ and they cannot get ‘lost in circulation,’ so there will never be a need for replacement. On that premise, it will also serve as a long-term cost-cutting measure. In addition, there will be no cost in increasing supply to the system if demand increases over time.
The modernization and expansion of BOJ’s currency minting and issuance processes fall right in line with the desired increased digitization of the economy.
When and how will CBDC be launched in Jamaica?
The BOJ intends to introduce CBDC in early 2022. In preparation for this launch, a pilot CBDC roll-out will be tested in BOJ’s Fintech Regulatory Sandbox between May 2021 & December 2021. On August 9th, 2021, the Bank of Jamaica reached a major milestone and created history by minting Jamaica’s first batch of CDBC. A total of J $230 million in CBDC will be issued using a hybrid distribution model, to deposit-taking institutions and authorised payment service providers during the CBDC pilot exercise, ending in December 2021.
Times are changing and so is how we use and interact with ‘money’. It is truly becoming a digital age right before our very eyes. Very soon, wallets, as we know it will also change as their purpose, may become obsolete.