Transitioning to a digital currency
The Bank of Jamaica is expected to roll out its central bank digital currency (CBDC) this year.

In recent years central banks across the globe have been researching and following a new trend. This is due to the reduction of physical cash payments and the rise of digital wallets and payment services, such as Alipay and PayPal from China and the US, respectively.

In May 2020 the Bank of Jamaica (BOJ) decided to proceed with its own central bank digital currency (CBDC) due to certain benefits to both the banking sector and the wider public, such as more financial inclusion and more efficient and versatile ways of regulation and monetary management in the 21st century.

According to Investopedia, a CBDC is a digital note/coin that represents the virtual form of a fiat currency, such as the Jamaican dollar. It's primarily centralised and will be solely issued and regulated by the BOJ. It is important to not confuse CBDCs with cryptocurrencies, as cryptocurrencies such as Bitcoin and Ethereum are decentralised, not usually backed by anything, and are secured by blockchain technology, unlike the Jamaican CBDC.

The BOJ partnered with an Ireland-based company, eCurrency Mint, to help them carry out tests during the pilot phase which occurred in May to December of 2021 in the Central Bank's FinTech Regulatory Sandbox. ECurrency will also help to launch the nationwide roll-out in early 2022.

The central bank says the CBDC will have many benefits for the public, such as faster payments to merchants; immediate settlements in comparison to the typical automated clearing house (ACH) and real time gross settlement (RTGS) transfers; little to no processing delays; and cheaper payments as it will have little to no fees in comparison to credit/debit card payments. It will also be beneficial to the central bank and Government as well, due to its centralised nature.

With this new endeavour, the Government claims it will be able to decrease money laundering, financing of criminal enterprises, locate tax evaders more efficiently, calculate the exact amount of money in circulation, and have a stronger grip on monetary policy.

This all sounds great and like a no-brainer decision, but this new form of money presents a range of potential privacy, ethical, rights, and infrastructural issues. Many people are rightfully concerned, after all, anything that is digital can and most likely will be tracked and controlled. One concern is that the Jamaican CBDCs won't be secured with blockchain technology. Such technology is a recording system that is used to make sure it is very difficult to hack or change data.

This new frontier of the financial world — CBDCs — will put more power in the hands of a smaller group of people, which could have massive downsides. For example, the group with power having a certain philosophy or ideology that another group doesn't agree with; the group without any influence on the financial system could be blacklisted and be discriminated against; and if certain groups of elite individuals don't agree with dissenting views, that could lay the groundwork for the creation of a surveillance State where freedom of thought, expression, and speech are snuffed out with extreme prejudice.

Another issue is privacy. As said before, everything that is digital has the potential to be traced. With the use of CBDCs, all transactions can be tracked and recorded and could be the source of blackmail, defamation, and extortion.

The heightened potential risk of breaches is another enormous issue that the BOJ will, most likely, never be able to circumvent. Almost every month we hear of a hack or breach on the world stage in which money goes missing or a certain plan was executed, such as the Colonial Pipeline attack in May 2021.

There are protocols put in place for security, but far advanced technology has been hacked in other countries, and even if the best security is found, technology improves on a daily basis. Who's to say that a super computer or some form of quantum computing will not hack this CBDC platform in the near future and cripple the country indefinitely?

Unfortunately, those are not the only issues.

Jamaica faces multiple natural disasters and threats on an almost yearly basis that could potentially grow worse in the coming years. How will the financial system we are all so reliant on push against stronger and more consistent hurricanes in the future or earthquakes that we could not possibly anticipate?

These very events have already damaged countless technological infrastructure that is worth billions of dollars. Imagine if you have only digital currency and the electricity has been out for days and your phone and computers have died, how would you carry out transactions for basic items such as food?

Man-made disasters could also present risks, such as wars, crime, fires, explosions, an electromagnetic pulse (EMP) that could knock out the power grid, and more. These could also damage the infrastructure and cause areas to be without power for various lengths of time.

The central bank says the CBDC will work in collaboration with physical cash, but it is inevitable that we will move to a cashless system and there are myriad problems that would have to be solved before we could embrace such a system.

Although the central bank claims that CBDCs would cut down on black market activities, what is stopping individuals from using decentralised cryptocurrencies to carry out illicit transactions?

The central bank has good intentions, but for a country with so much corruption, nepotism, and crime in general, I think every well-thinking person can see how this system could be manipulated and used against them. It would be very dangerous to put all your eggs in one basket and all the aforementioned vulnerabilities show that it would not be wise to do so.

During this transitionary phase we must be as careful as possible to make sure this system is not used against the very people it was made to benefit. The Government and the civil society must work hand in hand to make sure this platform is as transparent as possible and does not threaten civil liberties and freedoms.

There is no doubt that the CBDC offers more efficiency and inclusion, but at what cost?

Malik Smith is currently pursuing a double major in economics and banking and finance. Send comments to the Jamaica Observer or @MalikSmithJM.

The road from cash to cashless may be fraught with danger.
Malik Smith
Malik Smith

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