AMONG the many unprecedented events of the 2020s is the Bank of Jamaica’s launch of Jamaica’s own digital currency. Many remain unsure, uninformed and, consequently, sceptical about the use of digital currencies. In response to an informal poll posted on our MF&G Twitter account with the question, “Are you excited or willing to use Jam-Dex? Jamaica’s Central Bank Digital Currency”, 58.1 per cent of the respondents voted no and 41.9 per cent voted yes. Some are also tentative about the use of “cryptocurrency”, if not completely opposed to it. A bit of information can, however, go a long way in soothing our anxieties, after all, not everything that is novel is dangerous.

Digital currencies

The term “digital currency” encompasses any currency that exists only in digital or electronic form. Hence, they are generally only accessible using computers or cellphones.

Digital currencies can be centralised or decentralised. Central bank digital currencies (CBDCs), as the name suggests, are digital currencies issued by central banks. A CBDC can also be a supplement or a replacement to the traditional fiat currency. Cryptocurrencies, on the other hand, are assets that have been created digitally by private companies to serve as a store of value and can be used in exchange for goods and services. In other words, cryptocurrencies, unlike CBDCs, are entirely decentralised.

Cryptocurrencies derive their value from their users while CBDCs derive their value from the authority of their issuing body, the central bank.

Most CBDCs and cryptocurrencies are backed by “blockchain” technology. Blockchain has been defined as “a shared, immutable ledger that facilitates the process of recording transactions and tracking assets in a business network.” Of note, Jam-Dex is not backed by blockchain technology. The BOJ has elected to use the services of eCurrency Mint Incorporated. eCurrency Mint Incorporated offers DSC3, a central bank security technology for operationalising CBDC.

The BOJ’s stance on cryptocurrencies

The BOJ, via a statement published on its website in July 2021, advised the public that cryptocurrencies are not legal tender in Jamaica and that the BOJ does not regulate or supervise these forms of digital currencies. The BOJ further cautioned the public to be wary of the risks associated with using cryptocurrencies including the high volatility causing significant fluctuation in value, the use of cryptocurrencies in the conduct of criminal activities, including money laundering and the financing of terrorism and the high degree of cyber-fraud/hacking.

There is clear truth to the volatility of cryptocurrency as evident from the reported “crypto crash” in the last few weeks. However, not all regulators in the region have adopted the same approach as the BOJ.

In 2020, the Digital Assets and Registered Exchanges Act (DARE) came into effect in The Bahamas. DARE regulates the issuance, sale, and trade of digital assets in The Bahamas. DARE also legally recognises distributed ledger technology, such as blockchain technology. The named regulator under DARE is the Securities Commission of The Bahamas. It should be noted that The Bahamas Government also has its own CBDC known as the Sand Dollar.

Why utilise CBDC?

Various jurisdictions have chosen to implement CBDCs for different reasons. As noted in “Behind the Scenes of Central Bank Digital Currency Emerging Trends, Insights, and Policy Lessons” by Gabriel Soderberg, these reasons usually include, greater financial inclusion, namely allowing access to appropriate and affordable financial services with a view to achieving poverty reduction, making the payment process more efficient, ensuring the resilience of the local payment systems (taking into account matters such as natural disasters), reducing the illicit use of money.

In Jamaica, the BOJ, no doubt would like to accomplish the same goals. Our population does however grapple with issues such as low levels of financial literacy, distrust of technology and increased susceptibility to hacking and other forms of digital fraud.

The BOJ has shared the following helpful points on their website:

• CBDC is not held in a bank account, it is held in a CBDC wallet that is issued by banks or authorised payment service providers.

• To get a CBDC wallet, you contact a wallet provider – a commercial bank, building society, merchant bank or authorised payment service provider. You will be asked to provide basic information, such as, your name, address, Taxpayer Registration Number and a valid, government-issued photo ID.

• Just as is the case with cash in your wallet, you do not earn interest on CBDC in your CBDC wallet.

• CBDC can be exchanged one-for-one with bank notes and coins.

• There are no fees. CBDC will reduce your costs as there are no fees charged for CBDC transactions such as payments and transfers.

• No bank account is needed for you to use CBDC as this is not a requirement to get a CBDC wallet.

The benefits of Jam-Dex, being Jamaica’s official CBDC, seem clear. The BOJ is on its mark and getting set to have a full launch of Jam-Dex in Jamaica. Only time will tell whether the Jamaican public is ready to go. Knowing what the different types of digital currencies are, how they are regulated, and how they can be used may boost your confidence in using them to transact business.

Simone Bowie Jones is a Partner in Myers, Fletcher & Gordon’s Commercial Department. She may be contacted via simone.bowiejones@mfg.com.jm or www.myersfletcher.com. This article is for general information purposes only and does not constitute legal advice.