THE International Monetary Fund (IMF) has raised concerns about cybersecurity threats to the Sand Dollar, The Bahamas’ central bank digital currency.
In its Article IV consultation and staff report published on Monday, May 9, the IMF extolled the benefit of the Sand Dollar to “foster inclusion” and, as a result recommended that the Central Bank of The Bahamas (CBOB) accelerate its education campaigns.
Moreover, it said the digital version of The Bahamas dollar is comparable to other advanced CBDC projects, including those of Canada, China, Nigeria and the Eastern Caribbean Central Bank.
However, the IMF called on CBOB to implement a “robust supervisory and regulatory framework for the growing virtual assets sector”.
“In line with the 2021 IMF safeguards assessment, the CBOB should continue strengthening internal capacity — including on cybersecurity and the resilience of systems associated with the Sand Dollar — and maintain careful oversight of the CBDC project, including to safeguard financial integrity,” the fund advised further.
At present the Sand Dollar accounts for less than 0.1 per cent of currency in circulation and there are limited avenues to use the Sand Dollar. The central bank recently completed the initial integration of the Sand Dollar with its automated clearing house system.
Still, the IMF is not the only institution raising concern about security issues surrounding CDBCs. The Bank of International Settlements (BIS), in a recent paper titled ‘CBDCs in emerging market economies’, highlighted that data privacy and data governance were among the major concerns of central banks now engaged in a pilot or proof-of-concept phase of CBDC development.
“Data collected as part of the CBDC system and how they are managed can affect consumer privacy as well as the competitiveness of the new digital landscape,” the BIS outlined.
“Some level of identification is crucial for CBDC design. Currently payment systems rely on effective identification of users for access and system integrity; CBDCs are no different,” it added.
To this end, the BIS recommended tethering CBDC systems to a digital identification system.
Responding to the IMF’s counsel, CBOB noted that it continues to build its internal capacity, especially in cyber security and surveillance.
“Our authorities welcome the fund’s prioritisation of developing internal and external capacity in the area of CBDCs and other forms of digital currency. They also look forward to sustaining mutually beneficial engagement in this space,” the central bank continued.