78.3 F
Charlotte Amalie
Saturday, July 24, 2021
HomeCommentaryOp-edOp-Ed: Cryptocurrencies, Central Banks and the Caribbean

Op-Ed: Cryptocurrencies, Central Banks and the Caribbean

David Jessop (photo courtesy of Caribbeanintellignce.com)

In less than three months’ time, El Salvador intends becoming the first country in the world to make Bitcoin its official currency alongside the U.S. Dollar.

The country’s president, Nayib Bukele, a populist and media savvy disruptor, says that his decision will generate employment, enable the financial inclusion of tens of thousands of the country’s citizens who operate outside the formal economy, and enable its large diaspora in the U.S. and elsewhere to send money to their families more cheaply. The idea is that the government will guarantee convertibility to dollars at the time of transaction through a US$150 million trust fund created at the country’s development bank BANDESAL.

Others are far from sure how this will work.

The IMF says it needs to assess the legal, financial, macroeconomic and regulatory problems that may occur in relation to the US$1 billion loan it is considering, and the World Bank has expressed an unwillingness to assist in implementation given Bitcoin’s “environmental and transparency drawbacks.” It is also unclear how the country will manage the risks inherent in its volatility: Bitcoin peaked in March at 58,734 to the U.S. Dollar before falling back to around 39,091 this month.

Advertising (skip)
Advertising (skip)

Paradoxically, El Salvador is taking this uncharted course just as regulatory authorities around the world are exploring how they can manage the risks posed by cryptocurrencies.

In the last few days, the Basel Committee on Banking Supervision, the primary global standard setter for regulation by central banks, has said that it is consulting on a proposal that would see digital currency assets placed into two differently managed groups. Cryptocurrencies, such as bitcoin, it said, will be subject to ‘a new conservative prudential treatment’ while others will be eligible for treatment under the existing Basel Framework for banks

The announcement follows an unrelated decision last month by the Financial Stability Committee of China’s State Council, which announced it would “crack down on Bitcoin mining and trading behavior.” Subsequent commentary in China’s state media made clear that its financial institutions must not participate in or facilitate cryptocurrency transactions and criticized the profligate use of energy for Bitcoin mining. Though not stated, these developments may relate to work the country’s Central Bank is undertaking on the creation of a digital currency and electronic payment system for a Digital Yuan that may eventually be promoted as a global reserve currency.

A further indirect blow was struck when the U.S. Department of Justice challenged the assumption that crypto currencies are secure.  Using blockchain analysis, it seized back 63.7 bitcoins worth US$2.3 million, paid by Colonial Pipeline to ransomware hackers by obtaining in an undisclosed way the private key needed to access the money.

These developments affecting the future of unregulated cryptocurrencies suggest that the innovative, balanced and progressive approach being taken towards digital currencies by Caribbean nations have real value.

It has long been evident that the Caribbean needs to modernize and speed up its creaking, largely conservative banking and payments systems in ways that embrace the unbanked and rural communities, works around the region’s fragmented geography, and helps citizens cope during a pandemic and during post-disaster recovery.

The challenge has been how to do so in a manner that is developmental in a region of multiple currencies, reduces the relatively high cost of transactions, remittances and monetary exchange; embraces tourism; and supports the growing pressure on banks and businesses to respond to complex international anti-money laundering and terrorism financing requirements.

What now sets the Caribbean apart from those seeking to use or promote cryptocurrencies is the development of what are known as Central Bank Digital Currencies or CBDCs. These provide an electronic record in the form of a digital token that represents in virtual form a fiat currency, issued and backed by a government or regional financial authority.

This year has seen the Bahamas and the Eastern Caribbean introduce two such currencies.

The first was the Bahamas’ SandDollar, a CBDC issued by the Bahamas Central Bank, which can be used for transactions on mobile phones. A few months later, the East Caribbean Currency Union (ECCU) launched a digital EC Dollar pilot project known as D Cash. This involves Antigua, Grenada, St. Kitts and St Lucia, developing a digital payment platform backed by the Eastern Caribbean Central Bank, which, after a twelve-month assessment, is expected to roll out the initiative in all eight ECCU nations.

Other Caribbean countries are also exploring the use of digital CBBCs. They include Belize and Jamaica, which hope to have fully operational systems in place by 2022; Haiti, which intends to develop a pilot program; and Barbados, which has been using since 2017 a ‘synthetic’ CBDC issued by a third party, backed 101 percent by notes and coins, supervised by the Central Bank and the country’s Financial Services Commission. However, this has yet to progress to a Central Bank issued CBDC. Suriname too has explored a CBDC, and Cuba is considering the role of cryptocurrencies and CBDCs for the additional reason that their use may enable transactions that U.S. sanctions have made it hard to undertake

There is also potential interest elsewhere. Speaking recently at a virtual conference in the Cayman Islands, the Caribbean economist, Marla Dukharan, has suggested that as a world-class jurisdiction that is entrepreneurial, progressive and forward-looking, it should be exploring technologies that help to distinguish it from others.

More generally, Dukharan, who also works with Bitt, the Barbados-based Fintech company that helped develop D Cash and other Caribbean digital currencies, says that future initiatives have to come from policy makers and those with an interest supporting socio-economic development since CBDCs are unlikely to be of interest to the non-indigenous banking sector in the region.

She believes that government, private sector and cross border transactions for trade and remittances can be made much more affordable and efficient. “Policymakers have the potential to completely change the way business is conducted,” she stresses. “I am proud that the Caribbean is becoming the world’s Central Bank Digital Currencies hotspot, supportive of financial inclusion, compliance efficiency and less informality. These are important considerations especially for the Caribbean.”

She is right. Carefully monitored Central Bank regulated digital currencies could, in a decade, not only revolutionize Caribbean financial transfers, but do much to engage the unbanked, encourage intra-regional trade and even facilitate the reconceptualization of the Caribbean Single Market and Economy.

David Jessop

David Jessop is a consultant to the Caribbean Council and can be contacted at

david.jessop@caribbean-council.org

Previous columns can be found at https://www.caribbean-council.org/research-analysis/

Print Friendly, PDF & Email




Support local + independent journalism in the U.S. Virgin Islands

Unlike many news organizations, we haven't put up a paywall – we want to keep our journalism as accessible as we can. Our independent journalism costs time, money and hard work to keep you informed, but we do it because we believe that it matters. We know that informed communities are empowered ones. If you appreciate our reporting and want to help make our future more secure, please consider donating.

JOIN OUR MAILING LIST

STAY CONNECTED

20,771FansLike
4,348FollowersFollow

FROM FACEBOOK

Comments Box SVG iconsUsed for the like, share, comment, and reaction icons
11 hours ago
Virgin Islands Source

Juju & Cece’s Lemonades and Treats is hosting a "Freco and Lemonade" event today from 11 a.m. to 4 p.m. at Cultured Naturals Body Care located on Company Street in Christiansted, St. Croix.

The business, Juju & Cece’s Lemonades, evolved from a summer project put together by 4-year-old Juliett Reid-Ventura and 3-year-old Gracie Reid-Ventura. #visource #usvi #supportlocalbusiness
... See MoreSee Less

Juju & Cece’s Lemonades and Treats is hosting a Freco and Lemonade event today from 11 a.m. to 4 p.m. at Cultured Naturals Body Care  located on Company Street in Christiansted, St. Croix. 

The business, Juju & Cece’s Lemonades, evolved from a summer project put together by 4-year-old Juliett Reid-Ventura and 3-year-old Gracie Reid-Ventura. #visource #usvi #supportlocalbusiness

Comment on Facebook

Cute as a button. Darling little princess. Please protect them

Make sure they Mask 😷 up.

Loving and trusting someone is such a risk and i don't wish any woman to be in the same shoes as i was sometime back when I caught my husband red-handed with my own best friend in our own bed. I couldn't believe it when I saw it and my heart started beating so fast and felt like my body is shaking then I ran straight to my elder sister's house. I cried so much and my sister left me to cry and told me it would help ease the pain I was feeling. Then she sat me down and asked me if I still love my husband and I told her yes of course, and she told me that we all learn and grow through mistakes and no one is perfect and told me that if I wanted my man back I should fight for him and never trust friends again.My sister told me to contact profisma+27783320386 who had helped her husband with financial issues and told me he will help me bring my man back. It took me weeks to think about it because we come from a strong religious background but things worsened because I could not even concentrate at work and i got fired, and after that, i remembered what my sister had told me about consulting with him. That's when I contacted him and told everything, he listened, and told me that he will solve all my problems in 48 hrs. Since it was my first time doing this, i could not believe his words just like that but i had to wait until the time he had promised. I was asked to buy materials to help me which I did, we begun the prayer and results were delivered in three days. My husband called me and asked me where I was, and he came straight to me and confessed how my best friend seduced him, and he was sorry to fall into her trap and showed me all the messages my best friend was sending to him and promised never to see her again and promised to love me and only me. That evening he took me to a romantic dinner, Since prophet isma helped me, I got a better paying job than the previous one, my husband is back to the old man I used to know and he loves me so much and does everything to see that am happy. Thank you so much prophet, your spells indeed work. If you're going through struggles, you can text him on WhatsApp +27783320386 or call him

Load more
Print Friendly, PDF & Email