Casey Wagner

<div id="highlights-block_62a0fc2266809" class="highlights">
 <ul>
 <li>Jamaica’s central bank officially recognizes a digital Jamaican dollar as legal tender</li>
 <li>It is the first time in history a country has passed this type of legislation</li>
 </ul>
 
</div>



In a move to offer an alternative in a cash-heavy economy — and buttress the finances of the unbanked — Jamaica has become the first country to render a CBDC legal tender.



Jamaica’s senate authorized the country’s national bank to issue its CBDC (central bank digital currency), the Jamaica Digital Exchange, or Jam-Dex, via an amendment. The fresh legislation expands the definition of legal tender to include virtual tokens, as well as physical notes and coins.&nbsp;



Jam-Dex, which has been in a pilot since 2021, will launch officially for domestic use later this month, Central Bank of Jamaica Governor Richard Byles told Blockworks.



The CBDC is expected to significantly limit the challenges associated with Jamaica’s primarily cash-driven economy. A digital Jamaican dollar offers a more secure, convenient alternative to physical notes and coins, Byles said — and can be used without a bank account.&nbsp;



“Legislators in Jamaica have all now unanimously moved a digital dollar forward in Jamaica,” said Jonathan Dharmapalan, CEO of eCurrency, which provides technology for central banks to issue and distribute CBDCs. “You can use this to settle any debt in Jamaica. It is the medium of exchange. It is the medium of account.”&nbsp;



The success of the pilot, Dharmapalan said, proved Jam-Dex’s underlying technology and infrastructure works, but seeing citizens use the currency in the real world in the coming weeks and months will demonstrate the true value of CBDCs.



“What is primarily important is that countries start to recognize that their money can come in digital form,” he said. “Because it&#8217;s digital, you don&#8217;t have to be in the same place at the same time to execute a transaction…It&#8217;s a really, really powerful tool.”



While Jamaica is the first country to make CBDCs akin to cash, it is <a href="https://cms.blockworks.co/why-emerging-markets-are-leading-the-charge-on-cbdcs/" target="_blank" rel="noreferrer noopener">not the only government</a> looking into the technology. Brazil, Nigeria and Haiti are among the jurisdictions exploring the establishment or expansion of CBDCs. The Central Bank of the Bahamas’ Sand Dollar became the world’s first CBDC in 2020.



Emerging markets looking into CBDCs have similar goals and motivations, the Bank for International Settlements said in a May <a href="https://www.bis.org/publ/bppdf/bispap123_a_rh.pdf" target="_blank" rel="noreferrer noopener">report</a>.



“Providing a cash-like digital means of payment, in light of reduced cash usage and an increase in private digital payment services, is the most common consideration,” the report said. “Other significant considerations include strengthening competition among payments service providers (PSPs), increasing efficiency and reducing the costs of financial services.”



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In Historic Move, Jamaica Makes CBDC Akin to Cash

<div id="highlights-block_628fba706c69f" class="highlights">
 <ul>
 <li>Emerging markets see potential in central bank digital currencies for increasing financial inclusion and decreasing cash dependency</li>
 <li>Infrastructure and privacy concerns continue to be top barriers</li>
 </ul>
 
</div>



With more than half of central banks worldwide working on digital currency initiatives, the US dollar-dominated payment network may in relatively short order become a thing of the past, according to the <a href="https://www.bis.org/publ/bppdf/bispap123.htm" target="_blank" rel="noreferrer noopener">Bank for International Settlements</a>.&nbsp;



Emerging markets are at the forefront of the central bank digital currency (CBDC) movement, industry leaders say, a trend attributed to these economies having more pressing, fundamental needs than those of more developed markets.&nbsp;



“Emerging economies appear to view CBDCs as a way to jump start their economies,” said Steve Aschettino, a Norton Rose Fulbright partner concentrating on fintech. “More-developed nations have existing and widely adopted electronic payment mechanisms already in place. While one may say this is an advantage, their existing payments technology can also serve as a barrier to the creation and broad adoption of a CBDC.”



Emerging markets looking into CBDCs have similar goals and motivations, the BIS said in a <a href="https://www.bis.org/publ/bppdf/bispap123_a_rh.pdf" target="_blank" rel="noreferrer noopener">report</a> earlier this month.&nbsp;



“Providing a cash-like digital means of payment, in light of reduced cash usage and an increase in private digital payment services, is the most common consideration,” the report said. “Other significant considerations include strengthening competition among payments service providers (PSPs), increasing efficiency and reducing the costs of financial services.”&nbsp;



<a href="https://cms.blockworks.co/jamaica-to-launch-cbdc-this-summer/" target="_blank" rel="noreferrer noopener">Jamaica</a>, Brazil, Nigeria and Haiti are among the countries currently looking into establishing or expanding CBDC pilots. For cash-driven economies such as Jamaica, CBDCs allow for cheaper, safer and more efficient transactions, Central Bank of Jamaica Governor Richard Byles said.&nbsp;



“If you can imagine what it costs a business, especially a high cash-volume business, to manage that cash: to keep it, to store it, to transport it — digital currencies get rid of all that,” Byles said in a recent interview.



CBDC infrastructure provider EMTECH has worked with the Bank of Ghana, the Central Bank of the Bahamas and the Central Bank of Nigeria on CBDC infrastructure projects in recent years. The company most recently partnered with HaitiPay, a Haitian fintech company, to demo a CBDC and fintech proof-of-concept in the region. The goal was to showcase the impact a CBDC can have on the Haitian economy, according to Carmelle Cadet, founder and CEO of EMTECH.  



“Being born and raised in Haiti, I have a view of how many people are unbanked and underbanked,” Cadet said. “When I discovered what blockchain was, I realized that there was a solution that could bypass where people are from and how much money they had and get them access to better financial resources.”&nbsp;



Although interest in digital currency has grown, most CBDCs are still in early pilot stages, and those that have progressed further are not yet widely used, said Kenneth Goodwin, director of regulatory and institutional affairs at Blockchain Intelligence Group. The Central Bank of the Bahamas’ Sand Dollar, which became the world’s first CBDC in 2020, has faced distribution issues, he said.



“I speak to John Rolle, who is the head of the Central Bank of the Bahamas, he&#8217;s not a big fan of the idea of all of this, quite frankly,” Goodwin said. “His job has become a lot more challenging because he&#8217;s taking this digital asset and trying to find a way to implement that into the system where they used to have a fiat currency.”&nbsp;



A huge benefit of CBDCs for central banks, Goodwin said, is the ability to better understand where — and how — people are spending. The transparency, of course, brings up privacy concerns as well.&nbsp;



“Anytime you digitize any platform, you&#8217;ll increase both cybersecurity risk and data privacy risk,” Goodwin said. “Data privacy is very, very key in terms of who owns the data, whether that data is being owned by the individual or is being owned by the central government, and that is a huge issue.”&nbsp;&nbsp;



Infrastructure is also a key concern, Aschettino said. Limited broadband access in many countries looking into CBDCs can significantly limit distribution, he said.&nbsp;



“These countries have to do a full assessment first to see that the citizens have access to the internet,” Goodwin said. “They&#8217;re going to have to do an assessment first and not get caught up with the technology, which is what often happens, they get caught up with the technology, but they don&#8217;t think about the infrastructure.”



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Why Emerging Markets Are Leading the Charge on CBDCs

<div id="highlights-block_624b71f4bcd04" class="highlights">
 <ul>
 <li>Central banks are going to continue to investigate CBDCs, PwC analysts say</li>
 <li>Stablecoins offer many of the same benefits as CBDCs but without the surveillance that comes with a government-issued currency</li>
 </ul>
 
</div>



The vast majority of central banks are considering launching a central bank digital currency (CBDC), according to analysts at accounting firm PwC.



“CBDCs will facilitate more effective, lower cost and 24/7/365 cross-border payments for the financial services industry,” analysts from PwC said in the firm’s annual <a href="https://www.pwc.com/gx/en/new-ventures/cryptocurrency-assets/pwc-global-cbdc-index-stablecoin-overview-2022.pdf" target="_blank" rel="noreferrer noopener">index</a> of CBDCs and stablecoins, which was released Monday. “We expect that CBDCs will greatly benefit cross-border transactions and economies of all relevant jurisdictions.”



Overall, retail CBDC projects, which are digital currencies designed for public use, have reached greater maturity levels than wholesale projects, which are digital currencies used by financial institutions that have accounts with central banks, the report notes. There has been an increase in wholesale pilots in recent years though, analysts said.



China became the first major economy to pilot a retail CBDC in 2020 with the digital yuan. The pilot is running in 12 cities as of March 2022.&nbsp;



The Sand Dollar, issued by the Central Bank of the Bahamas as legal tender in October 2020, was the first retail project of its kind. Nigeria’s central bank launched the first CBDC in Africa, the eNaira, shortly afterwards.&nbsp;



On the wholesale side, PwC ranked the combined effort from the Hong Kong Monetary Authority and the Bank of Thailand to launch mBridge as the top product. The central banks are working to develop a proof-of-concept prototype to enable real-time, cross-border foreign exchange payments on distributed ledger technology.



Other top projects include efforts by Canada, Singapore, France and South Africa.



“Wholesale CBDCs have the potential to streamline security token post-trade operations through atomic delivery-versus-payment and increase the market efficiency for several asset classes,” Benoit Sureau, PwC France and Maghreb financial services risk and blockchain partner, said.



PwC analysts for the first time included a stablecoin overview in the annual CBDC index report, noting that privately issued tokens will continue to evolve and exist alongside CBDCs.&nbsp;



Stablecoins reached a market capitalization of around $190 billion in early 2022 and will continue to grow as the tokens offer many of the same benefits as a CBDC without the surveillance that comes with a government-issued currency, the report noted.&nbsp;



Transparency around reserve assets, particularly for stablecoins that are backed with fiat currency, will be a major concern going forward, though, as the asset class continues to grow and regulation ramps up, analysts added.



“The role of the stablecoin in the crypto markets has and will continue to evolve as adoption of crypto increases, forcing a more prominent role of stablecoins across the larger financial ecosystem,” Matt Blumenfeld, director and digital asset specialist at PwC said. “Regulation will only strengthen the importance and give credence to the role that stablecoins will play.”



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Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.



Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. <a href="https://blockworks.co/newsletter/onthemargin">Subscribe to the Forward Guidance newsletter</a>.



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