Jam-Dex reluctance
BOJ governor says inability to make money off CBDC behind banks’ hesitance to embrace digital currency

GOVERNOR of the Bank of Jamaica (BOJ) Richard Byles is seemingly suggesting that commercial banks are slow to get onboard with the central bank digital currency (CBDC) because they do not stand to profit from it.

“Because central bank digital currency is free to use and the banks can’t attach a fee to it, there is a little bit of reluctance to embrace it and to take it to market,” Byles told Bloomberg Television anchor Shery Ahn during a live interview at the Bloomberg New Economy Gateway Latin America function in Panama City, Panama, recently.

He, however, said the BOJ has been encouraging the banks to get onboard with the CBDC, which is named Jam-Dex in Jamaica. He said to overcome the challenges of not being able to make money from issuing Jam-Dex, the banks are bundling it with other products.

“I think that what [the commercial banks] are looking to do is to wrap that CBDC in a wallet where they can offer many other financial services and, on that basis, distribute it to their customers. So, I am looking forward to the future when those wallets will become public and become interoperable and begin to gain momentum,” Byles added.

Amendments to the Bank of Jamaica Act to allow for the issuing of Jam-Dex were tabled in Parliament on Tuesday and the expectation is that they will be passed before the end of June. This follows a pilot stage of the roll-out of the digital currency with National Commercial Bank (NCB). Jam-Dex is to have the same recognition as cash in Jamaica.

HAYNES... by the end of this month the full threshold of 100,000 customers will be met and those persons will be able to begin transactions among NCB wallet providers. (Photo: Derron Wright)

Earlier on Tuesday, BOJ deputy governor of banking and currency operations and financial markets Natalie Haynes told journalists at the central bank’s press briefing, “We are in a phased roll-out with one existing wallet provider, which is NCB. Through NCB, the qualifying customers for the Government’s cash incentive of $2,500 that has been paid to qualifying persons and the balance of persons that qualify will be paid at the end of this month.”

Haynes was referring to cash payments the Government made to individuals to encourage 100,000 Jamaicans to sign up for Jam-Dex.

“So, by the end of this month the full threshold of 100,000 customers will be met and those persons will be able to begin transactions among NCB wallet providers by the end of this month going into the first week of June,” she continued.

Haynes reiterated that another three commercial banks have signalled that they want to be part of the digital currency roll-out and “by the end of this calendar year, we expect to have them onboard along with others, hopefully”.

BYLES...because central bank digital currency is free to use and the banks can’t attach a fee to it, there is a little bit of reluctance to embrace it and to take it to market

Byles, during his appearance on Bloomberg, added that while he cannot judge the popularity of the digital currency until it is fully rolled out, the cost of having one is much cheaper for all.

“Cash is very expensive for us to mint it and distribute it, very expensive for the banks to hold it and distribute it; very expensive for every businessman to take the cash, secure it and transport. So CBDCs offer the chance to take that cost out of all levels of the system,” Byles explained.

He, however, said he believes the CBDC will be successful in Jamaica.

“One of the reasons... that I think [the CBDC] will be successful is that...70 per cent of the persons in Jamaica have a bank account, but many of them don’t use it because of the fees and because of the inconvenience. What a digital currency will do in Jamaica, as [in] the rest of Latin America, is give them the freedom of moving money around without touching the banks. I think that is a big impetus for persons,” Byles added.

In July last year, Haynes, in an interview about the digital currency, had said the bank expects Jam-Dex, as it was eventually named, “will be the preferred means of payment...in 10 years from roll-out, if not before.”

However, when asked about the currency’s popularity, the central bank governor told Ahn on Bloomberg: “We are still in the pilot stage and therefore I can’t comment as to how popular it would be. But once we have the banks in support of it, I think it’s not a hard thing for the consumer to be won over, because they are all using phones already. In fact, the number of phones in Jamaica outnumber the number of people. Everybody is au fait with how to use the phone, and to move currency around with a phone will be second nature to them.”

He also outlined that the central bank has taken steps to secure the digital currency against hackers.

“That is a cost that we at the central bank have on the table and we have had international companies to ensure we are as secured as possible. So we will accept that cost, but I can tell you, that is a tiny fraction of the cost of printing and distributing cash,” Byles said.

Asked why the central bank decided to issue the currency through commercial banks, given the issue with the banks embracing Jam-Dex, Byles replied, “Commercial banks have hundreds of thousands of customers already, so why would the central bank want to recreate that distribution network. All the merchants are customers of the commercial banks too and we want to encourage private enterprise anyway, so we choose to go through the commercial banks.”

Added Byles: “In Jamaica, with the central bank digital currency, we at the central bank won’t know who is doing what transaction. The commercial banks, if they are requested to... they can trace where every transaction came from and where it went. Now, to do that, in our case, for example, you would need a court order. So somebody would have to get authorisation from the courts to say, ‘Let me go and look for the transaction that John Brown did on the 14th of September 2021’, and that can be traced, and that is one of the big advantages of digital currencies. But normally, it would be quite anonymous because we are trying to make cash, as much as possible, free to use and anonymous and only in exceptional circumstances we would break that anonymity,” Byles explained.

He added that “central bank digital currencies have a lot of advantages locally. They are secured, they are very fast and they tend to be more inclusive, bring people into the banking system, people who stay outside of the banking system because of inefficiencies, because of the cost to deal with transactions in the banks”.

BY DASHAN HENDRICKS Business content manager hendricksd@jamaicaobserver.com

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