Bahamas wants to oblige banks to use digital central bank money

In 2020, the Bahamas became the first country in the world to issue a central bank digital currency (CBDC), the "sand dollar". The Caribbean nation's central bank is now preparing regulations that oblige commercial banks to grant access to this digital money in order to promote its acceptance. This was reported by the news agency Reuters on Monday, citing the head of the Bahamian central bank.

Central bank chief John Rolle, who oversaw the introduction of the sand dollar four years ago, told Reuter that acceptance was still limited. According to Rolle, commercial banks are currently being briefed on the new regulations, which would effectively force them to use the currency. "We have started to signal our institutions accordingly," Rolle said. "We foresee a process where all commercial banks will eventually have to operate in this area and provide their customers with access to the central bank digital currency." The rules should therefore come into force within two years.

Bahamas as a CBDC pioneer

The Bahamas' role as a pioneer of a digital central bank currency will be closely followed worldwide, Reuters believes. Several central banks around the world are working on the introduction of CBDCs. The US government, for example, is considering the introduction of the "digital US dollar". China is also planning a state cryptocurrency and wants to become the first major economic power on the planet to have a sovereign digital currency. Japan, on the other hand, wants to introduce the "digital yen". Nigeria was the first African country to introduce digital central bank money. For its part, the European Central Bank (ECB) launched a multi-year investigation phase into the digital euro in July 2021, focusing on aspects such as technology and data protection.

If the EU Commission has its way, a digital euro will be available to citizens and companies as legal tender in a few years - from 2028 at the earliest. Last summer, the EU Commission outlined the conditions for the use of a digital euro for the first time in a draft law. The promise was that it would be as anonymous offline as cash. The digital euro is "not a Big Brother project". In February of this year, the German Federal Office for Information Security (BSI) published a technical guideline for digital central bank money, in which the authority provides information on "security by design" for "digital cash" and advises the use of various wallets for anonymous payments. If data protection is not sufficiently considered when introducing a digital euro, there is a risk of data retention, data protection experts recently warned.

No obvious advantages of CBDCs yet

Central bank digital currencies come in two forms, either in the sand dollar 'retail' form, where the public can use them, or as a 'wholesale' version, which is only used by financial institutions. If banks were required to make the sand dollar available, they would have to make significant changes to their IT systems, writes Reuters. However, the Central Bank of the Bahamas believes this is essential to promote the acceptance of CBDC and mobile payments in general. According to experts, part of the problem with CBDCs is that they do not yet offer any obvious advantages over existing means of payment. There are also reservations that digital central bank money could pave the way for more government control.

The sand dollar currently accounts for less than one percent of cash in circulation in the Bahamas. Wallet reloads fell to 12 million dollars in the eight months to August last year, compared with 49.8 million dollars in the same period the previous year, Reuters reported, citing data from the Bahamian central bank.

Requiring commercial banks to embed the sand dollar into their systems should make it easier to use, Mr. Rolle said. However, he conceded that the bigger challenge is to get more stores, restaurants and businesses to accept the sand dollar as a means of payment. Rolle ruled out financial incentives for the use of the sand dollar or interest on sand dollar wallets.

(akn)