The Central Bank of the Bahamas is to launch a sovereign digital currency nationwide next month as looks to encourage digital payments and boost financial inclusion, especially on the archipelago nation’s more remote islands.
The country – which spans 700 islands located southeast of Florida and north of the Greater Antilles – has been piloting the so-called ‘Sand Dollar’ in two areas over the past year. The central bank is now pressing on with rolling out the e-currency, which will be available via a mobile-phone-based ‘wallet’ app, nationwide from October.
“A lot of residents in [the] more remote islands don’t have access to digital payment infrastructure or banking infrastructure,” the central bank’s assistant manager of e-solutions, Chaozhen Chen, told the news agency Bloomberg. “We really had to customise the effort and the solution to what we need as a sovereign nation.”
Sand Dollars – will be valued 1-to-1 with the Bahamian dollar, which is itself pegged to the US dollar – will be introduced gradually as physical dollars are retired, Chen said.
Financial inclusion imperative
The central bank unveiled details of what it referred to as ‘Project Sand Dollar’ in December 2019, with the first pilot launching in Exuma. It was described as a continuation of the Bahamian Payments System Modernisation Initiative (PSMI), which began in the early 2000s. The trial was extended to the Abaco islands in February this year.
The central bank, which is based in capital Nassau, said at the time that although average measures of financial development and access in the Bahamas are high by international standards, segments of the population are excluded because of the remoteness of some communities ‘outside of the cost-effective reach’ of physical banking services.
The central bank also said that ‘more onerous’ customer due diligence standards for anti-money laundering (AML)/combating the financing of terrorism (CFT) international tax compliance ‘have also resulted in forms of exclusion’. It said it wanted to accelerate payments system reform, admit ‘new categories’ of financial services providers and use digital payments infrastructure to make the supply of traditional banking services accessible to all segments of the population.
It said, though, that the public would need ‘more assurances’ around the safety of conducting online transactions and that the digital currency’s design and public education would tackle these issues.
Although, at the time, the central bank said that ‘most’ benefits of introducing a digital currency were ‘still unquantifiable’, they include potential cost savings from reducing cash usage, and benefits to the government from ‘improved expenditure and tax administration systems’.
It said that as the pilot progressed in Exuma, the central bank would promote the development of new regulations for the digital currency, and strengthen consumer protection, especially around data protection standards. It said that it would also advance reforms to permit direct participation of non-banks in the domestic payments system.
In February the central bank’s governor, John Rolle, told local TV channel ZNS that there had been a positive response to the pilot on Exuma, with about 1,200 ‘digital wallets’ being activated and interest “twice what we had intended”.
‘The way forward for this era’
Blockchain news source CoinGeek reported last month that the central bank had ‘taken its pursuit of a national digital currency to the next level’ by including it on its official balance sheet. According to the central bank’s 123-page annual report for 2019, there were $48,000-worth of Sand Dollars in circulation.
The overall population of the Bahamas, which gained independence from the UK in 1973, is about 400,000. Most of its islands are uninhabited.
The deputy prime minister, Kevin Peter Turnquest, announced plans to create a national digital currency in June 2018. “The production of a modern fully digital payment service is the way forward for this era of governance. A digital Bahamian currency is especially important for the many Family Islands as they have seen many commercial banks downsize and pull out of their communities, leaving them without banking services. As an island nation, where transportation can be an inconvenience for many, especially the elderly, and costly, we must offer financial services digitally and securely,” he said at the time. The Family Islands, also known as the Out Islands, are more sparsely inhabited than the country’s resorts and main population centres.
Global Government Fintech recently reported that the European Central Bank (ECB) is to present a taskforce’s findings on the pros and cons of launching a digital euro ‘in the coming weeks’. The Frankfurt-headquartered institution’s work in the area mirrors how most central banks, as well as major tech companies, most prominently Facebook, explore the potential for launching their own digital currencies. China is widely seen as leading the way among major nations.