Time for the Patty Dollar


Time for the Patty Dollar

The Digital Life - Editor's Write

Wednesday, November 25, 2020

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The Bahamas, that necklace of more than 300 islands and islets, has taken the lead in launching a digital currency, the Sand Dollar. They even trumped China which has been testing a digital currency in select cities but has not done an official roll-out.

The Central Bank of Bahamas launched the token-based digital currency saying it has the potential to boost economic activity and, by extension, financial inclusion. Last month's launch came at a time when The Bahamas had been responding to the impact of several storms which destroyed the livelihoods and businesses of many of its population living in the outer islands. The Bahamas has found an innovative way for its citizens, stretched across the island chain, to have reliable financial services, even without a bank branch.

Its launch has not gone unnoticed in the world of central bank digital currency (CBDC) innovation. The alliance for Financial Inclusion (AFI) supports these moves since their mission is to promote the empowerment of policymakers in a bid to increase access to quality financial services for the poorest populations. The Alliance points to CBDC's role in accelerating digitisation for emerging and developing economies amid COVID-19.

Jamaica and a few other Caribbean countries have also been testing digital currencies in their regulatory sandbox, with designated partners in the financial sector allowing their central banks to set in place the regulatory framework for efficiency and safeguarding consumer interests. CBDCs are seen as leveraging simple features to help onboard groups with low literacy levels, something that is very much in line with efforts in the Caribbean.

AFI Deputy Executive Director Norbert Mumba appreciates the cautious approach of central bankers.

“We must evaluate the uniqueness of our individual country context, institutional culture, capabilities, resources, immediate-to-long term strategies and goals, market, consumer behaviour and much more reliably determine our position, approach and actions going forward,” he urges.

Last year during meetings in Nassau, the Bahamas, members of AFI's digital financial services working group agreed to explore relevant links between digital currencies and financial inclusion. Optimism is high in Nassau with the central bank's e-solution director David Chen expressing hope that the sand dollar and related policies will create a domino effect and provide clear linkages and evidence for financial inclusion, so other countries may follow suit.

“We developed the 'sand dollar' out of necessity… as certain financial institutions in the more remote parts of the country were finding it unfeasible to operate in thinly interacted locales, leaving a huge financial inclusion gap,” he explained.

Plans are in place to aid the integration of the Sand Dollar with other global currencies. Importantly, this digital currency could kick-start an inclusive global digital economy and, much like the United Nations, provides a level playing field for all members where each vote counts. The governor of the Bank of Canada Tiff Macklem advocates for global collaboration, arguing that a “globally coordinated” approach will help to prevent exploitation by criminals.

This approach is worthy of adoption by Caricom states, and The Bahamas central bank's Bobby Chen, who is assistant manager of electronic solutions, said that plans are in place to aid the integration of the Sand Dollar with other global currencies.

Several private sector companies in the region are also urging central banks to speed up the implementation of the digital currency as a response to the challenge of de-risking, which threatens the banking sector. Mastercard, which has raised its profile in the region, set up a dedicated virtual platform to work with central banks to assess and explore central bank digital currencies.

In Jamaica, a digital currency would have facilitated a smoother deployment of the financial relief programmes initiated by the Ministry of Finance, which faced challenges in fund distribution as many potential recipients did not have bank accounts. As shown in several trials,with the digital currency there would be no need for a trip to a bank branch to open an account and to transact business since a smartphone would be all that was needed.

The former International Monetary Fund (IMF) Resident Representative for Jamaica Dr Constant Lonkeng Ngouana suggested in the summer of 2019 that we could create the Patty Index as a barometer of our financial markets. There were knowing smiles from an audience which included the man who would later become the head of the Bank of Jamaica, Richard Byles. As The Bahamas' progress with the sand dollar has shown, we should not hesitate to embrace original ideas — we should add the Patty Dollar to the mix. After all the Jamaican patty already enjoys an excellent brand reputation at home and abroad.

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