RECENTLY, Minister of Finance Dr Nigel Clarke announced that the Bank of Jamaica (BOJ) would pilot its central bank digital currency (CBDC). This move by the BOJ represents a significant, transformational and game-changing effort that will be a substantial underpinning in Jamaica’s journey to becoming a digital society. So what does CBDC mean for consumers and businesses?

What is a CBDC?

In short, CBDC is the digital version of what we know as paper money and will have value directly equivalent to its paper counterpart. More importantly, it is regulated and issued by the BOJ and will be considered legal tender.

Jamaica is not the first country in the region to look into the issuance of CBDC. Today, the Eastern Caribbean Central Bank launched its DCash, a digital currency first announced in 2019 as a pilot CBDC project with Barbados-based fintech company Bitt. In October of last year The Central Bank of the Bahamas introduced the Sand Dollar as a digital legal currency equivalent to the traditional Bahamian dollar, making it the first of its kind in the world to have been fully deployed.

How will the CBDC work?

It is essential to understand that CBDC is not a cryptocurrency. Cryptocurrencies are based on a decentralised operating paradigm while CBDCs are centralised currencies. Additionally, while cryptocurrencies typically run atop blockchain technology, not all CBDCs use blockchain, a matter which I will explain in my next column. A central bank will “mint” this digital currency and issue it to commercial banks. Each CBDC unit will be cryptographically unique and almost impossible to forge. Consumers will require a digital wallet to store and exchange CBDCs for goods and services. The digital wallet may be an app on your mobile phone, a piece of software running on your computer or a hardware device physically connected to your computer. Transactions using CBDC will be hyper-efficient and near-instantaneous, so the age of waiting hours and days to get paid or to have funds transferred to your account will no longer exist.

For all of this to happen, a few guidelines are essential.

• The payment modality must be as simple as what exists now with cash.

• There should be minimal or zero cost to the consumer when doing transactions.

• The infrastructure platforms and networks that CBDC-based transactions will use must handle a high volume of transactions, be highly secure, be resistant to cyber attacks and resilient to network failure.

• Consumers must be able to conduct “offline transactions” if there are network or power failures.

• The systems must allow for a wide range of retail payment integration points with a wide range of providers, not only commercial banks.

In my next column I will discuss the effect that CBDCs will have on consumers, businesses and banks.

Trevor Forrest is CEO, 876 Solutions and a certified blockchain architect with over 29 years of experience in the IT Industry in Jamaica and overseas.

Email: trevorforrest@876solutions.com