Bank of Jamaica’s Central Bank Digital Currency (CBDC) – What is it and why Jamaican Businesses should care.

Recently, the Minister of Finance, Dr. Nigel Clarke, announced that the Bank of Jamaica (BoJ) will be piloting its Central Bank Digital Currency (CBDC). This move by the BoJ represents a significant transformational and game-changing effort which will be a major underpinning in the journey towards Jamaica becoming a digital society.

This is the first in a series of articles that will outline what CBDC is and what it means for consumers and businesses. 

What is a CBDC?

In short, CBDC is the digital version of what we know as paper money and will have value directly equivalent to its paper counterpart. More importantly, it is regulated and issued by the BoJ and as, such will be considered legal tender.

Jamaica is not the first country in the region to look into the issuance of its own CBDC.  In fact, in March 2019, the Eastern Caribbean Central Bank announced that it would engage in a pilot CBDC project with Barbados-based FinTech company Bitt, and more recently in October of last year, the Central Bank of the Bahamas introduced the “Sand Dollar” as a digital legal currency equivalent to the traditional Bahamian dollar making it the first of its kind in the world to have been fully deployed.

How will CDBC work?

It is important to understand that CBDC is NOT a cryptocurrency. Cryptocurrencies are based on a decentralized operating paradigm while CBDCs are centralized currencies. Additionally, while crypto currencies typically run atop blockchain technology, not all CBDCs use blockchain. (The Pros and Cons of this I will discuss in another article in this series)

While details about Jamaica’s CBDC are still unclear, generally, a central bank will “mint” this digital currency and issue it to commercial banks. Each CBDC unit will be cryptographically unique and almost impossible to forge. Consumers will require a digital wallet to store and exchange CBDC for goods and services. The digital wallet may be an app on your mobile phone, a piece of software running on your computer, or a hardware device physically connected to your computer.

The nature of the transactions using CBDC will result in their being hyper-efficient and near-instantaneous, so the age of waiting hours and days to get paid or to have funds transferred to your account will no longer exist.

For all of this to happen, the following guidelines must be followed:

• The payment modality must be as simple as what exists now with cash.
• There should be minimal or zero cost to the consumer when doing transactions.
• The infrastructure platforms and networks that CBDC-based transactions will use must be able to handle a high volume of transactions, be extremely secure, be resistant to cyber-attack and resilient to network failure.
• Consumers must be able to conduct “offline transactions” if there are network or power failures.
• The systems must allow for a wide range of retail payment integration points with a wide range of providers, NOT only commercial banks.

In the next article, I will discuss the effect that CBDC’s will have on Consumers, Businesses, and Banks.

Trevor Forrest is CEO, 876 Solutions, and a Certified Blockchain Architect with over 29 years of experience in the IT Industry in Jamaica and overseas.
trevorforrest@876solutions.com