What’s the point of pushing digital currencies and transactions if cash is still king?

With the introduction of digital currencies across the Caribbean region, there are even more ways to conduct business electronically, but there still seems to be an emphasis on cash, which is likely well into the foreseeable future.

 

Across the Caribbean region, countries are in varying stages of launching a central bank-backed digital currency (CBDC). The Bahamas was out the gate first, followed by the member countries of the Eastern Caribbean Currency Union, and most recently, Jamaica. Countries, such as Barbados, Guyana and Trinidad and Tobago appear to still be in the planning stages, but there have been assertions that a digital currency is in the works.

In an article published last week in Barbados, it was noted that the Central Bank of Barbados had announced that it would be introducing a new series of banknotes later this year,  despite there being a thrust by the Government and the Bank to encourage more digital payments and transactions. The article thus sought to briefly explore the why of introducing new cash when the country is moving more toward digital payments, and gave the following reasons:

• Cash remains popular
• Even as people move toward digital payments, they view cash as a back-up
• They will be some for whom cash will always (or for a long time) be king.

Jamaica launched its CBDC in April, which coincided with an announcement of new banknotes that will become available later this year. The Bahamas, which launched its CBDC, the Sand Dollar in 2020, released a new BHD 100 note in the last quarter of 2021.The Eastern Caribbean Central Bank last issued new banknotes in the second half of 2020, and launched its CBDC in the first half of 2021.

To be fair, there appears to be a long lead time for the issuance of new banknotes, and in many instances, a phased approach is employed where notes for all of the denominations are not released at the same time. Having said this, the launch of CBDC does not happen overnight; and so, it may appear counterintuitive if new banknotes are being issued when a key marker of success of the CDBC is its uptake and use by citizens.

When the broader lens of digital payments and transactions, of which CBDC is a part, is examined, the effort by Caribbean governments to encourage greater use of electronic payment and transaction facilities seem to fall short. Below are a few general observations that have been made.

 

It is still cheaper to transact in cash

If you go into any shore in the Caribbean region and wish to make a purchase in cash, unless there are safety concerns, the odds are it will accept the money. If on the other hand you wish to pay via a debit card or a credit card, three scenarios are likely. First, the store may not have a card processing machine, and so cannot accept credit or debit cards. Second, the store has a card processing machine, but they would prefer you pay with your debit card, as the credit card has higher processing fees and charges. Third, the store has a card processing machine, but does not allow credit card transactions under a certain amount, due to the processing fees and charges that will be incurred.

 

Using digital payment options are still expensive

In a similar vein, and when dealing with sole traders, such as tradesmen, manicurists, hairdressers and barbers, or small businesses, relatively few of them tend to have card processing machines. Frequently, securing these can be pricey – the monthly rental plus the transaction fees – and more often than not, the machines might not be readily available at the bank for you to secure at a moment’s notice.

Interbank transfers, that is transfers between different banks, can be an efficient way to settle payments without the need to handle cash, which many need to be withdrawn from one bank, only to be deposited in another. In developed countries, these transfers are the norm between individuals. However, in the Caribbean region, depending on the banks and the country, these transactions can be costly, and so may only be an option when large sums of money are involved.

 

The unbanked and underbanked will still fall through the cracks

Great concern has been expressed about the size of the unbanked and underbanked population in the Caribbean region, and consequently, the need for greater financial inclusion. In Jamaica, for example, it has been estimated that up to 70% of the population is unbanked or underbanked. One of the reasons for this financial exclusion is the extensive Know Your Customer requirements at commercial banks, which make it difficult, if not impossible, for many people to access basic financial products and services.

Across the region, it is still cheaper and convenient to do business in cash; and so there is no true incentive to embrace digital alternatives. Cash is still the main medium – and so is king. Digital or electronic channels still appears to be secondary to cash: a nice to have, but not essential or on par with cash. In essence, a person who does not have cash at hand may not be able to pay for certain goods and services; whilst barring exceptionally large amounts, a person with cash at hand will almost never be turned down.

 

In summary, digital transactions and currencies are here to stay; but it is not yet clear how Caribbean countries intend to navigate from cash-based societies to digital ones, especially as we should also be transitioning to digital economies. Currently, there just appears to be a mishmash of systems, all of which need to be accommodated and managed.

Admittedly, and thanks to decades of dealing only in cash, particularly among our senior population, it may be especially difficult to some citizens to go digital. However, a cogent strategy and plan, would be essential to get us from where we are, to more financially inclusive societies.

 

 

Image credit:  Karolina Grabowska (Pexels)