Central Bank Digital Currencies (CBDCs) have been launched to much fanfare in the Caribbean region, but take-up has been low. We suggest five ways Caribbean countries can improve their digital currency adoption.

 

Globally, the Caribbean region seems to be leading the way with regard to the launch of Central Bank-backed Digital Currencies (CBDCs). As at the time of writing, three CBDCs have been issued: the Sand Dollar, in The Bahamas; DCash, in the eight countries that are part of the Eastern Caribbean Currency Union; and most recently, Jam-Dex, in Jamaica.

In much of the discussion leading up to the launch of these CBDCs, it was anticipated that the CBDC would facilitate greater financial inclusion for individuals who currently are unbanked or underbanked. The Know Your Customer (KYC) and Anti-Money Laundering (AML) rules that commercial banks, in particular, have to follow, can be onerous to many segments of the population, and so tend to be the primary barrier to greater financial inclusion.

However, there have been growing reports of relatively low adoption of these CBDCs, with many of the central banks now advocating for greater use and integration in the countries in which they are available. It could thus be argued that there was an assumption that once a CBDC existed, citizens would clamour to get it: “build it and they will come.” However, people do not appear eager to transact with CBDCs. We thus outline some ways we believe Caribbean countries can increase adoption of their CBDC.

 

1. Properly establish the enabling environment

Without a doubt, launching a CBDC requires careful management. For all of the CBDCs that have been launched in the Caribbean region, comprehensive piloting periods were held before the official release of the CBDC. However, in some instances, such as in Jamaica, the legislative framework to fully support the CBDC has not yet been put in place – though the CBDC was launched almost two months ago.

Though it is still early days in Jamaica’s CBDC journey, legislation tends to be the foundation upon which many ecosystems are build, and would be a critical input in creating the proper enabling environment. In its absence, it thus means that certain initiatives may have to be delayed, and the continued build-out of the ecosystem hampered, which is likely to adversely affect the credibility of the CBDC among the citizenry.

 

2.  Government to take the lead

Currently, and depending on the country, governments and businesses have been shying away from accepting personal cheques, but are prepared to accept, cash, debit cards, credit cards, wire transfers, etc., to receive payment. However currently, it would appear that with the exception of the Bahamas, the governments of the other countries that have a CBDC have not (yet) recognised it as legal tender – to the point that they are accepting as payment.

As the largest employer and purchaser of goods and services in most Caribbean countries, as well as being the entity with which every citizen and organisation must engage, Government has the power to drive not only the take-up of its country’s CBDC among its citizens, but also the integration within and across the public and private sector. When governments do not accept a CBDC as a payment option, it could bring its legitimacy into question, as it entities will still need to maintain the payment options accepted by government

 

3.  Be clear on the value proposition… from the merchant’s and consumer’s perspective

In discussions on the benefits of CBDCs, the following, among others, are usually mentioned: it is cheaper than cash to manage and maintain; facilitates cheaper and faster transactions; and fosters greater financial inclusion, particularly for individuals who cannot open bank account. However, it could be argued that many of the benefits have been expressed from a central bank’s or the financial services industry’s perspective. To a considerable degree, those benefits do not materially affect the man-on-the street, or the micro or small business that may tend to operate primarily with cash, and/or already have bank accounts through which to conduct their transactions.

To that end, it is crucial that questions on the benefit of a CBDC to the man-on-the street, and to merchants, can be clearly answered. More importantly, that benefit or value has to be meaningful, in order for people to realise that they need to be able to transact in CBDC, which in turn will drive the adoption.

 

4.  Simplify money management

For those of us who have bank accounts, the odds are we have accounts in which the majority of our transactions are conducted. These accounts are likely to be held at the same bank for more efficient and cost-effective transactions. If by chance we have accounts at other banks, it is usually because they are for a designated purpose, and we do not want to be able to access them too easily.

In having the CBDC in a standalone wallet, which seems (or perhaps is) separate and apart from the existing banking system, can be a headache, and again does not encourage its use. For example, could it be integrated into existing banking applications and platforms, so that money can be transferred easily from the traditional bank account to the CBDC account and vice versa? For example, should an individual get a substantial CBDC payment, with very few steps, they should be able to use it to settle their credit card bill, or to transfer a portion into a designated savings account, or into an investment vehicle. The focus ought to be on ease and breaking down the silos – CBDC versus cash – that are emerging.

 

5.  Ensure the robustness of the system

Finally, a major challenge in the Caribbean region is that our systems do not always work when they are needed. Many of us have had the experience of wanting to use a credit or debit card to complete a payment, and the vendor advises us that “the machine is not working”, and whether we have cash instead. There was also the experience earlier this year when DCash was down for about six weeks. Once again, this hiccup is still early in DCash’s journey, but would most likely have affected customer confidence in the OECS countries where it has been launched.

To that end, and if a person continually needs to have cash or other forms of payment because the CBDC platform is liable to be unavailable on a regular basis, people may opt not to take it seriously. More importantly, it will continue to validate the importance of cash, and why Caribbean countries, and the region as a whole, will continue to be cash-based societies.

 

 

Images credit: Marco Verch Professional Photographer (flickr); Bank of Jamaica; Twitter; Facebook