During a financial ceremony on 10 August, the Bank of Jamaica (BoJ) officially announced that it had minted the country’s first batch of its Central Bank Digital Currency (CBDC).
The bank is currently focused on the large-scale roll-out of the digital currency. In an effort to develop the Central Bank Digital Currency, the BOJ plans to issue a large amount of the digital currency to depository institutions, licensed payment service providers and other financial companies to test the robustness and stability of the system once the CBDC is introduced.
The entire amount is expected to be 230 million Jamaican dollars (JMD) which equates to almost $1.5 million; the initiative is part of a pilot project that is expected to be completed later this year and has the ultimate goal of digitizing the Jamaican economy as soon as possible.
The process has been overseen by the country’s finance minister, Nigel Clarke, Bank of Jamaica governor Richard Byles and a group of senior BOJ executives.
However, it was the Irish fintech company eCurrency Mint that provided all the means and technology to implement this project, specifically for mining.
The opportunities of a CBDC for Jamaica
It is important to remember that the CBDC is a digital form of currency issued by the Central Bank, which is the sole issuer, and is therefore legal tender. It should not be confused with cryptocurrencies, which are privately issued and not backed by a central authority.
The country’s CBDC is designed to be complementary to the country’s banknotes, allowing financial institutions to issue the currency to private and corporate account holders with each digital token pegged to the JMD at a 1:1 ratio.
For example, households and businesses will be able to use it to make payments and store value at no cost.
The electronic currency in Jamaican dollars will be stored and exchanged by users via digital wallets on their mobile phones.
One of the major advantages seen in the CBDC by the Bank of Jamaica is that it would be able to reach the remotest corners of the country and bring the unbanked on board the banking system.
This would be a win-win situation as the government and the BOJ would be able to offer benefits to new users and users would also be able to take advantage of all the opportunities this could provide in the long run.
The BoJ has also previously addressed concerns about data privacy and money laundering risks associated with a CBDC.
In an interview, Mario Griffiths, director of payment systems policy at the Bank of Jamaica, revealed that the central bank would engage third parties to monitor and manage operations to combat money laundering.
Not only Jamaica. It is estimated that over 60 central banks around the world are in various stages of testing and piloting CBDCs, with Venezuela announcing its launch in October, while China is also expected to be the first of the larger countries to introduce its CBDC in the coming months.
Conflicting views and ideas on this project, as stated by JP Morgan strategist Josh Younger, highlight the risk for CBDCs to “disintermediate commercial banks” and lead to a loss of between 20% and 30% of their funding base.