Journey to a Bahamian Digital Dollar

Posted on Oct 22, 2021 by Allison Middleton, Sand Dollar Project Management Team, Governor’s Office and Martiniqua Moxey, Policy Advisor, Governor’s Office, Central Bank of The Bahamas

On 12 October 1492, Christopher Columbus made landfall in the Western Hemisphere during a Spanish-sponsored voyage to the East Indies. Instead, the explorers arrived in the island chain, today known as The Bahamas. Nearly 530 years to the day, The Bahamas again took the international stage, becoming the first country to issue a retail central bank digital currency (CBDC).

The name ‘Bahamas’ has a disputed origin. Some historians claim the word is a derivative of the Taino language of its indigenous people, the Arawaks, ba ha ma meaning ‘big upper middle land.’ Yet, other historians believe it is from the Spanish baja mar ‘shallow water.’ The archipelago stretches more than 500 miles (800 km) across nearly 100,000 square miles of the Atlantic Ocean. It is comprised of approximately 700 islands and cays; however, about 30 are inhabited. The island chain is home to a population of almost 400,000 persons, mainly of African descent. The vast majority of locals live on the capital island, New Providence, as well as Grand Bahama Island—home of the free trade zone Freeport. The remaining islands are more rural and collectively called the Family Islands.

Stocking Island, Exuma, The Bahamas. Photo credit: Allison Middleton

Average measures of financial development and access in The Bahamas are high by international standards. However, due to dispersed geography, with pockets of sparse populations, many Family Island communities have limited or no access to physical banking services. The rising costs of providing banking products through traditional physical channels have further scaled back this access.

Customer due diligence standards for AML/CFT international tax compliance have also resulted in forms of exclusion, including more recent responses to tighter “know-your-customer” (KYC) regulations introduced to preserve international correspondent banking relationships. As recent policy and regulatory reforms began to tackle these barriers, the Central Bank of The Bahamas intended to accelerate payments system reform using the digital payments infrastructure to increase both the access and usage of traditional banking for all.

To encourage more inclusive access to financial services for the unbanked and underbanked communities within The Bahamas, the Central Bank introduced a digital version of the Bahamian dollar on 20 October 2020. This initiative acquired the name Project Sand Dollar. Sand Dollar is also the name assigned to the CBDC. This project is the latest advancement of the Bahamian Payments Systems Modernisation Initiative (PSMI), which began in the early 2000s.

Payments Systems Modernisation Initiative

One of the Central Bank’s strategic goals is to have a “secure, efficient and modern payments system, implementing comprehensive oversight mechanisms, mitigation of risks, and ensuring the availability of enabling market infrastructure for delivery of services to the public.”

The Bahamian PSMI is directed by the National Payments Council (NPC). In 2004, to automate the payments settlements process among the clearing banks (commercial banks), the Central Bank invested directly in the startup of the Bahamas Interbank Settlement System¾the real-time gross settlement (RTGS) system for large-value payments between clearing banks. The Central Bank then promoted efforts to establish ... 


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Tags

CBDC, Modernisation, Digital Currencies, Digital Transformation