Bank of Jamaica developing digital currency

0
Bank of Jamaica developing digital currency
Bank of Jamaica

(JAMAICA GLEANER) — The Bank of Jamaica, BOJ, plans to test a digital currency as an alternative to cash later this year.

The central bank digital currency, or CBDC, would be additional to banknotes and coins, and backed by the central bank as legal tender. It will be tenable in Jamaica only.

BOJ is currently recruiting a technology vendor, whether from Jamaica or overseas, to develop the CBDC, the bids for which are due by midnight August 14.

The pilot or test phase will begin in December under the BOJ’s sandbox programme for fintech innovations, but it may be another two years or more thereafter before the digital currency is formally put into circulation.

“Testing of CBDCs is usually done within 18 to 24 months, after which a decision will be made whether or not to roll out to the public,” said BOJ Deputy Governor Natalie Haynes in written responses to the Financial Gleaner sent via the central bank’s public relations department.

In the clarifying remarks and guidance to potential bidders posted on its website, BOJ, when asked whether it was funding the pilot, said that was to be determined. It advised the tech providers to include an annual budget in their bids.

BOJ said on its website that it would not be opposed to conducting the pilot entirely online, given the restrictions induced by the pandemic for travel and physical contact, once the designed currency can be executed virtually.

The digital currency will be issued to licensed banking institutions in the same manner as physical currency, said the BOJ. But as to the amount of digital currency for initial issue, that is still to be determined, as it depends on the demand from banks, Haynes said.

“In this event, however, the BOJ wishes to assure the public that it will continue to issue banknotes and coins for facilitating all economic activities,” she said.

The central bank clarified to potential bidders for the pilot that it plans to include payment service providers in the test phase of the CBDC’s roll-out.

Over time, the central bank expects to substitute cash with the digital currency, and as such, the BOJ says no inflationary impact is expected from the CBDC’s introduction.

“It is expected, over time, that the demand for physical notes and coins will be reduced and be replaced by digital currency,” said the deputy governor. “The issue of a substitute digital currency by BOJ will not impact inflation any differently from the issue of physical cash,” she said.

The CBDC will not be tradeable against physical cash, as is the case for cryptocurrencies such as bitcoin, which can be exchanged for hard currency at a transacted value. That’s due in part to the differences between a digital currency, which is backed by a central bank and government, and a cryptocurrency, which is privately issued, generally not backed by a central authority, and does not perform all the essential functions of money.

“The Jamaica dollar CBDC is a substitute for physical Jamaica dollar cash and, in that regard, cannot trade against itself. The CBDC will be issued and backed by BOJ, just as now is the case with physical cash,” Haynes said.

Electronic payments in Jamaica topped $7.3 trillion last year. The introduction of digital money would become the latest means to facilitate greater financial inclusion through technology.

(0)(0)

No posts to display