.svg)
The Bank of Jamaica has been given the seal of approval by Jamaica’s Senate to issue a central bank digital currency (CBDC) as legal tender locally.
The Caribbean island nation looks set to become another leader in the CBDC field, having amended its Bank of Jamaica Act to give the country’s central bank the ability to issue a digital currency.
Legislation to allow for a CBDC, which is called Jam-Dex, had already been passed by the country’s lower house in late May, following a trial that took place between August and December 2021.
Senator the Hon. Kamina Johnson Smith, the minister of foreign affairs and foreign trade and leader of government business in the upper house, told politicians that the full Jam-Dex implementation will improve financial inclusion, offering support to the nation’s unbanked.
Many Jamaican citizens lack access to banking services as they either do not have the sums of money required to set up an account or do not have the right documentation, something that the country is planning to tackle through a separate digital identity initiative.
“What you now will have is a wallet. So, you will get a CBDC wallet issued by banks or authorised payment service providers with simpler, customer-friendly processes for easy access,” Johnson-Smith, who is part of the Jamaican Labour Party, told the Senate.
“It is also anticipated that the CBDC will lower the cost associated with providing a national means of payment and provide an alternative to the issuance of bank notes.”
The senator also talked up the fact that the Jam-Dex will be instant, and does not come with cash handling fees, meaning that it will benefit merchants as well as consumers.
Other possible use cases could be the ability to receive remittances that are low-cost, fast, secure and adapted to local infrastructure, Anca Bogdana Rusu, head of public sector at Celo's cLabs, told VIXIO.
Micro-payments and savings could also potentially drive adoption, she added.
With this step, Jamaica is joining the strong CBDC momentum of the wider Caribbean region.
The Bahamas was the first country to release its digital fiat called Sand Dollar in October 2020, while Eastern Caribbean Central Bank (ECCB) is piloting a retail CBDC across its seven members.
Although the Caribbean DCash experienced an unexpected two-month pause earlier this year, the pilot is understood to be a great success and the regional central bank is considering turning the pilot into a full launch instead of ending it.
The pilots in the Bahamas and the ECCB have been followed by many central banks, in the region and elsewhere, with the view to learning from their prototypes, Rusu noted.
Further south, large Latin American markets such as Brazil and Mexico have also announced plans to issue their CBDCs in the next couple of years. Similar to Jamaica, one of the major use cases in these markets is financial inclusion and addressing the pressing issue of the shadow economy.
"With Jamaica now moving past the prototype stage, they will look at Jamaica for lessons about design, testing, and rollout, but also how policy objectives can be achieved via new forms of digital public money," Rusu added.
"If Jamaica is successful with adoption, I think we will see a lot of countries taking a similar approach, adapted to local circumstances and policy objectives."
One of the challenges is, however, whether the governments can make the use of their digital fiat attractive enough for citizens to adopt at the desired scale.
For instance, Uruguay was among the pioneers to test the technology for a CBDC back in 2018 but shelved this effort because it did not see how the e-peso could make a difference.
"In a way, CBDC is another financial product that needs to make enough of a difference in users' lives to generate the kind of traction and adoption that [justifies] the technological, legal and supervisory, as well as logistical effort," Rusu stressed.
In March, the country’s Ministry of Finance announced that the government would deposit $2,500 on the first 100,000 wallets that Jamaicans set up in the country, which has a population of less than 3m.
“This is a rather typical incentive used in the private sector to drive initial adoption, and it would be interesting to see to what extent it has been yielding results,” Rusu noted.
Adoption nonetheless could be further enhanced if the digital cash is made in a way to allow for interoperability with public, permissionless blockchains, “thus gaining access to an entire existing ecosystem of use cases adapted for local needs, ranging from savings, lending, fast and secure payments, including cross-border and new forms of credit scoring, regenerative finance, and MSME forms of funding”, she added.
“This is a pathway forward for CBDCs to gain the type of traction needed to make a difference in terms of both policy and inclusion objectives."
Elsewhere, different countries and jurisdictions have taken different approaches to CBDCs, but a majority of them have accepted that issuing one will require some sort of legislative action. The EU, for example, is due to propose legislation in 2023, while Sweden’s central bank has also concluded that it will need to be given the authority to issue an e-Krona by the country’s political representatives.
Meanwhile, at EBADay 2022 last week, one CBDC sceptic gleefully said that one of the benefits of the US’ slow congressional procedures will mean that any digital dollar is a long way off yet.
