Jamaican Central Bank Digital Currency to Pilot this May

SafReb

Well-Known Member
The announcement of “no new taxes” received the loudest applause in Parliament on Tuesday; however, the most transformative and innovative policy announcement was the piloting of Jamaica's digital currency. This pilot was first scheduled for 2020, but must have been delayed because of the onset of the novel coronavirus pandemic. But, ironically, the crisis and associated lockdowns of the pandemic have also accelerated the need for digital currency.

The Bank for International Settlements (BIS) have indicated that in the last 12 months more than 60 countries have experimented with national digital currencies, up from 40 in 2019. This includes four Caricom countries — Jamaica, Haiti, Trinidad and Tobago, and on February 17, 2021. The Bahamas became the first regional Government to fully launch a national digital currency.

Jamaica and the other 60 or so countries that are experimenting with digital currency
are embarking on what is called central bank digital currency (CBDC). Simply put, the Bank of Jamaica (BoJ) would start issuing digital money in addition to paper money and coins. This digital money would be backed by the BOJ, legal tender, and can be used for everyday transactions. It would be the digital equivalent of cash. This kind of CBDC is called general purpose or retail CBDC and offers a new option to the general public for holding money.

Codruta Boar, advisor, Innovation Hub, BIS, and Andreas Wehrli, visiting member of secretariat, Committee on Payments and Markets Infrastructure, BIS, explained that CBDC is different from cash, as it comes in a digital form, unlike physical coins and banknotes. CBDC is also different from existing forms of cashless payment instruments for consumers, such as credit transfers, direct debits, card payments, and e-money, as it represents a direct claim on the central bank, rather than a liability of a private financial institution.

Neither the Government nor the BOJ has indicated how Jamaica's system will work from the customer/user side. However, based on my research, the system will not be anonymous and require some form of identification. In the Chinese system (eCNY), users download to their cellular phone a digital wallet from the central bank, Peoples Bank of China (PBOC), which is linked to your bank account. A QR (quick response) code is generated, which is used to conduct transactions. To spend the money users can use the app to scan a retailer's QR code or produce their QR code that the retailer can scan. Jamaica is likely to take a similar approach.

It is important to contrast CBDC with cryptocurrency like Bitcoin and Ethereum. Cryptocurrency is not backed by any central bank, or any asset, and therefore could be considered a speculative investment, rather than real money.

The other big difference between CBDC and cryptocurrency is governance. CBDC has a central authority, a national central bank, that is used to ensure integrity and finality of transactions. Cryptocurrency is based on decentralised governance and requires consensus among network nodes to ensure validity.

Burkhard Balz, a member of the executive board of the Deutsche Bundesbank, at the American Council on Germany virtual event, held February 10, 2021, posited that the drivers of CBDC are, firstly, the rapid pace of digitisation, e-commerce and online services due to the pandemic. These developments are increasingly calling for a safe and efficient settlement asset which can be seamlessly integrated into almost any kind of business process. The second is really a consequence of the first. Balz argues that the use of cash is waning, and even in Germany the pandemic has boosted not only the use of credit and debit cards, but contactless payments in particular. These trends are also evidenced in parts of Jamaica. It remains to be seen whether the current trends will persist post-COVID-19.


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