As Bank of Jamaica prepares to launch a central bank digital currency (CBDC), Global Government Fintech editor Ian Hall catches up with the central bank’s CBDC implementation committee chair Natalie Haynes
Famed as the native land of record-breaking athletes such as Usain Bolt, Jamaica is on track to being one of the first nations over the finishing line in the race to launch a central bank digital currency.
Another Caribbean country, the Bahamas, already bagged CBDC gold, having been live for almost 18 months with its Sand Dollar; the Eastern Caribbean Central Bank is also up and running (kind of) with DCash (it’s suffering technical problems); and China’s well-progressed digital yuan trials have put the world’s most populous country pretty much on the CBDC podium.
But the birthplace of reggae music is moving in Lightning Bolt-esque fashion into the CBDC closing straight, with a public launch scheduled for the first quarter of this year.
Overseeing Jamaica’s progress is Natalie Haynes, who chairs the central bank’s committee for the implementation of a digital currency alongside her day-job as deputy governor for banking and currency operations and financial markets and infrastructure.
One of the best-known figures in central banking across the Caribbean, Haynes – who joined Bank of Jamaica (BoJ) “a little over” 34 years ago – is speaking to Global Government Fintech by videocall (her backdrop is BoJ’s Kingston headquarters illuminated at night) to discuss CBDC and fintech more broadly.
“What we have done has been amazing in a short space of time,” she says of Jamaica’s CBDC journey to date. But there are hurdles to clear before the finishing line.
Strides on Jamaica’s CBDC journey
The island’s government set out a timetable for the introduction of a digital Jamaican dollar in March last year, with finance minister Nigel Clarke talking enthusiastically about the possibilities of CBDC in parliament (worth watching on YouTube – the CBDC section starts at about 01:19:50). BoJ announced the appointment of eCurrency Mint as its CBDC technology provider the same month.
Activities since then have included the ‘minting’ of the first batch of Jamaican CBDC on 9 August: J$230 million dollars (about £1.1m)-worth of CBDC was issued to deposit-taking institutions and payment service providers (PSPs). The central bank issued J$1 million-worth of CBDC to its own staff the following day (10 August) and then, on 29 October, issued J$5 million-worth of CBDC to National Commercial Bank (NCB – a private bank).
BoJ has declared its pilot programme successful, with NCB having on-boarded 57 customers (four merchants and 53 consumers) during tests and the completion of some CBDC transactions during a special event.
But, at present, NCB remains the only digital wallet provider (specifically, the bank’s ‘Lynk’ wallet) ready for CBDC. Further testing is ongoing.
A couple of weeks ago, the winners of a competition for a name, tagline, logo and image for the CBDC were announced (naturally, the victors received some of their winnings in CBDC credited to their NCB digital wallets). Their entries will be revealed once both copyright processes (underway with the Jamaica Intellectual Property Office – JIPO), and a legislative review to amend the Bank of Jamaica Act to ‘concretise’ BoJ as sole issuer of CBDC are completed.
‘All aspects of currency management’
For those following the technical aspects of CBDC, Jamaica’s decision to adopt what BoJ itself has described a ‘not blockchain’ solution is interesting.
An announcement from the central bank last March contained a section entitled ’Choice of technology – not blockchain’, which said the CBDC would be integrated with the central bank’s Real Time Gross Settlement System (RTGS), JamClear.
Haynes explains BoJ’s thinking. “When we started off and were looking for a technology solution, we were agnostic,” she says. The central bank received 43 expressions of interest in a request-for-proposals. Six companies presented and eCurrency Mint was selected.
“We wanted a system that could handle all aspects of our currency management process,” she says. “We are trying to do [replicate] what we do with physical cash. So, to mint, issue, redeem and destroy if necessary. The other bids couldn’t do all of those currency functions. Somebody may ask: ‘why would you want to destroy digital [currency]?’. But if the technology is updated and you need to change the actual digital currency, you should be in a position to destroy what has existed and replace it. So, we wanted to ensure we could do all those aspects of currency management.”
“In addition, eCurrency’s system works seamlessly with the country’s real-time gross settlement [RTGS] – our large-value payment system, which is owned and operated by Bank of Jamaica,” she continues. “We didn’t want anything where you need to intervene manually to move from eCurrency’s system into our settlement system. It should be seamless. So, when banks order currency and we issue [currency], you can debit your account through the payments system (and vice versa); and, when redeeming, you can credit back the account through the payment system without any manual intervention.”
Financial inclusion and ‘efficiencies’ imperative
With a population of almost three million, Jamaica is the largest island in the English-speaking Caribbean. Inequality is lower than in most countries in the Latin America and Caribbean region, but poverty at 19 per cent (2017 data) is still significant, according to World Bank data.
Financial inclusion is one of the main drivers for many countries, including Jamaica, when it comes to exploring CBDC. Haynes references a newly published report, ‘Cheque In: Increasing Access to the Formal Financial System’, by the Jamaica-based Caribbean Policy Research Institute (CaPRI) in this regard.
BoJ hopes that CBDC will help those without bank accounts, as well as people with a bank account but who rarely use it. “We want to get all those who are financially excluded into the formal financial system – CBDC is a way to do that,” Haynes says.
But there are further motivations, such as generating “efficiencies” for the central bank in terms of time and costs.
“From the commercial banks’ perspective, cash is costly but it’s also costly for the central bank to manage cash,” Haynes says, explaining that Jamaica’s notes and coins are produced in the UK and Germany, and can require about nine months from order to arrival (shipping times have been extended by the pandemic’s impact).
BoJ aims to replace to replace five per cent of cash with CBDC each year. “We don’t expect overall currency in circulation to grow any more than normal. So, what you’d expect is a replacement or substitution,” she says.
Sandbox to help fintech innovation
The tale of Jamaica’s CBDC journey is interwoven, to an extent, with BoJ’s creation of a regulatory sandbox – a test space for fintech-related innovation.
“We realised that existing legislation [had] no teeth in terms of regulating PSPs, or even to have them designated under our Proceeds of Crime Act, which is our principal AML [anti-money laundering] legislation. So, in March 2020, we took a decision to withdraw guidelines for electronic retail payment services and replaced [them] with the sandbox.”
“And why did we do that? We do not want to stymie fintech development. But we realised that we had to get proper legislation in place to allow people to continue testing fintech products in the sandbox in a controlled environment authorised by the central bank.”
Jamaica’s Payment Clearing and Settlement Act (PCSA) “did not really give [BoJ] the authority to license and regulate an individual or a company to be a payment service provider,” she explains. She says that amendments to PCSA are expected to be passed by the end of this year.
As of December 2021, the sandbox had received 32 applications from 31 entities (one entity has two applications). Of those, 20 have been approved for testing (pre-paid card products and so-called closed-loop services are prominent). Nine applications are still being assessed to enter the sandbox while three were not approved.
‘Using technology to drive financial transactions’
Haynes has been in her current role for three years and is one of five deputy governors (the central bank also has a senior deputy governor, all reporting to governor Richard Byles).
She began her career as a university teaching assistant while pursuing a Masters in Economics. “When I was finished with that, the intention was to stay in academia,” she reflects. “But one of my former lecturers, Colin Bullock, went to the Bank and he decided that he must have me at the Bank with him!” (Bullock went on to become a deputy governor and also financial secretary in the Ministry of Finance & Public Service). “God rest his soul,” she says fondly of her former mentor, who died in 2017.
Fintech has, she says, slowly gained prominence in recent years, with the Covid-19 pandemic acting as a fillip to private-sector fintech innovation. She cites surging e-commerce user numbers and growth in cloud platforms. The sandbox will help more private-sector fintech solutions to take root.
What about fintech’s impact on life in Jamaica more broadly? “We see it as positive in terms of the transformation of economies, in terms of using technology to drive financial transactions,” she says, “whether that’s [for something] as mundane as going to the supermarket and paying bills or as sophisticated as investments.”
But regulation is needed. “Of course, everything must be under a regulated framework,” she says. “We’re very, very keen on that at Bank of Jamaica – for entities engaging in any fintech [activity] to be in keeping with the regulatory framework, more importantly, our AML framework in Jamaica. That’s been a big issue.”
Fintech across the Caribbean
Haynes’ longevity of service alone makes her a well-known figure among central bankers across the region.
She is involved through BoJ in two regional fintech-related initiatives: a working group set up six years ago by Caribbean Community (CARICOM) central bank governors; and a ‘Fintech Forum’ established in 2018 by CEMLA (long-established association of central banks in Latin America and the Caribbean).
The role of chairing the CARICOM group rotates between members, with Haynes picking up the baton in 2019-2020. Territories’ stages of development and objectives naturally differ, of course. She cites cross-border transactions as an example, saying that most other Caribbean islands have exchange and capital controls whereas Jamaica has a liberalised foreign-exchange system.
Other items on the group’s agenda have included regional standards for data protection; legislative considerations; the modernisation of payment systems infrastructure; and, of course, CBDC.
A single currency across CARICOM countries was first mooted decades ago. “It’s [been] on the agenda for CARICOM governance but that has been going for a long while and has not reached anywhere,” Haynes says.
The CEMLA forum’s agenda is similar, albeit the geography is bigger (the group’s most recent in-person meeting was in Argentina).
CBDC ‘was a fait accompli for us’
When Jamaica’s CBDC reaches full issuance, central bankers beyond the Caribbean will be watching closely to see how things go.
Haynes says that she has shared experiences with the Riksbank (Sweden’s central bank, which is itself well progressed with CBDC experimentation) and Ghana, which she describes as particularly interested “in terms of our experience with legislation”.
Cross-divisional input within BoJ was crucial to the relatively quick speed that Jamaica has moved forwards, she says.
While the world’s larger economies, such as the US, Eurozone and UK, continue to remain non-committal to launching a CBDC (although all have significantly stepped up their research and stakeholder engagement in the past year or so), Jamaica wasted little time in cracking on with procuring the technology and preparing to go live.
“It was a fait accompli for us that we were going to implement it,” she says. “So, all that research in terms of pros and cons and that, you know, we kind of dropped over that and went straight to the point of ‘we are going down this route’.”
Asked her top tip for other central banks when it comes to CBDC, she emphasises the importance of establishing a “proper governance framework for the project” that includes functions ranging from legal and accounting to IT and technical (including liaison with digital wallet providers). “I think that was what made it a success,” she says.
She estimates that, at present, CBDC is taking up about 30 per cent of her time (the percentage is higher when BoJ is preparing announcements) – the not-unimportant topic of monetary policy implementation is a significant part of the remaining 70 per cent.
After the CBDC’s public launch does she expect that 30 per cent to diminish? “The hope is that when the public launch has happened, it [CBDC] will kind of run itself,” she says.
But first there’s just a little more track to complete before Jamaica is there.
FURTHER READING
=>>> Global Government Fintech’s dedicated ‘Digital Currencies’ section <==
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