Central Bank.

The Central Bank of T&T is actively looking at the feasibility of issuing a digital currency here.

“With regards to CBDC (Central Bank Digital Currency), the Central Bank continues to be open but cautious and pragmatic in its approach. In 2020, the Central Bank conducted preliminary research into the feasibility of issuing a local CBDC and is furthering its due diligence study in 2021 with the assistance of the IMF whilst focusing on strengthening the broader framework for payments via key channels (such as legislation and infrastructure),” the Central Bank stated in its recently published Financial Stability Report 2020.

A CBDC is a digital form of fiat money, which according to the Financial Stability Report 2020, is a “safe, neutral and ultimate settlement medium that can extinguish all claims in a transaction.”

The Central Bank said in 2019, monetary authorities took serious note of Facebook’s announcement of its stablecoin, formerly called the Libra, and began giving more active considerations to CBDC in order to preclude the adverse impacts on monetary and financial stability of private sector digital currencies.

“To date, several jurisdictions have completed pilots and are in advanced stages of CBDC research and distribution,” the Central Bank stated.

The Central Bank stated that “the threat of losing monetary sovereignty, inter alia, has compelled regulators to consider issuing CBDC.”

“For some, diminishing cash use, costly and lengthy payment transactions, tax evasion, and financial inclusion are key reasons for issuing digital fiat. According to the literature, the main benefits for regulators of a well-designed CBDC are improved operational efficiency and prudential surveillance, reduced financial exclusion and enhanced macro-financial supervision, which address some of the issues created by traditional forms of money,” it stated.

“However, several drawbacks also exist such as, cyber-attacks, which are likely to lead not only to service disruptions but also adversely affect economic activity, as well as potentially high initial operating and social costs,” the Central Bank stated.

According to a Bank for International Settlements’ survey conducted in January 2021, over 80 per cent of the world’s central banks have explored CBDCs, at varying levels.

“As at April 2021, there have been over 15 pilot projects (three of which have been completed), two live CBDCs and over 30 publicised projects in the exploration and research phase. As it stands, there are two CBDC variants that have been adopted, tested or are under-research, retail CBDCs (R-CBDC) and wholesale CBDCs (W-CBDC),” it stated.

The Central Bank said the R-CBDC is a cash-like variant that is accessible to the general public, while W-CBDC is analogous to central bank reserve money that is only accessible to selected entities.

“Thus, of the projects undertaken, R-CBDC appears to be the popular choice, especially in emerging markets. Other accommodations made to permit the issuance of CBDC have required changes to jurisdictions’ legislation and regulation,” it stated.

The Central Bank pointed out that cross-border use cases have also contributed to the adoption of CBDC engagements.

“Driving these initiatives is the need to improve international payments systems. For these use cases, the W-CBDC variant has dominated this area of CBDC research and experimentation. Recent examples include Project Stella (European Central Bank and the Bank of Japan), Project JasperUbin (Bank of Canada and the Monetary Authority of Singapore) and the Multiple CBDC, mCBDC (in conjunction with the Hong Kong Monetary Authority, the Bank of Thailand, the BIS Innovation Hub, the Digital Currency Institute of the People’s Bank of China and the Central Bank of the United Arab Emirates),” it stated.

“Particular to the Caribbean, operational inefficiencies created by the geographical dispersion of persons and services was a driving factor for considering CBDC in the Bahamas and the Organisation of Eastern Caribbean States. In 2020, the Sand Dollar was launched in the Bahamas, and in March 2021, DCash—a pilot project—was launched in the Eastern Caribbean Currency Union. In Jamaica, there are plans to pursue a local CBDC. The Bank of Jamaica is collaborating with Ireland-based technology firm eCurrency Mint to develop and test a prototype CBDC over the period May to December 2021,” it stated.

The Central Bank noted that other territories in the region have expressed interest but are still in the exploratory phase.

“In T&T, several public and private initiatives, are improving the flow of funds in the economy. These initiatives, along with T&T’s electricity access, internet and mobile usage penetration and global connectivity indicators, suggest that the country is prepared for fintech innovations,” it stated.

Last year, the Bahamas became the first nation to issue its official currency in digital form.

The Sand Dollar is designed to extend financial services across the Atlantic Ocean archipelago of 700 islands.

In an interview with the Wall Street Journal, John A Rolle, governor of the Central Bank of the Bahamas, said the Sand Dollar is designed for those times when a credit card is not convenient.

He said the digital currency is a public good and, despite how it requires complex policy choices, is a sensible way for a small country to modernise its financial system.

But what is the difference between a CBDC vs Bitcoin and other cryptocurrencies?

Well, according to CBDC, a Sand Dollar is a direct liability of the central bank, in the Bahamas, backed by the foreign reserves.

“Cryptocurrencies are private sector issued or minted. While they may be backed by other assets, including central bank currencies, they may not represent the liability of any government or central authority. In some cases, cryptocurrencies may also not be backed by an underlying asset,” it stated.

Project Sand Dollar is the initiative embarked upon by Central Bank of the Bahamas to issue its own digital version of the Bahamian dollar (B$) as well as implement the appropriate digital payments system infrastructure to sufficiently underpin the operation of a digital currency ecosystem.

Last week, it was announced that Bahamian residents will now be able to pay for government services with the new digital Sand Dollars.

Director of the Revenue Audit and Cash Management Unit at the Ministry of Finance Nicole Reilly said: “Phase one of the Sand Dollar ecosystem build, which encompasses revenue collection for government agencies, is now complete on the technical side.

“We are eager to move onto phase two, which involves government expenditure payouts in Sand Dollars throughout the cash districts of our Southern Bahamian islands. The tentative date for this phase to go live is set for September 1, 2021.”