Facebook’s Libra might be fading a bit as a perceived threat to monetary systems that have been in place around the globe for centuries. But the race is still on for central banks to develop their own digital versions of fiat to take their place alongside bills and coins.
To that end, the Bahamas may stand out as an epicenter of sorts for the rise of central bank digital currencies (CBDCs). As reported by Reuters, the Sand Dollar – a new digital currency issued and backed by the Bahamian central bank – is now in circulation, and bit by bit, has been making inroads into retail use cases. The newswire noted that purchases at a health-food cafe in that country this week marked the first transactions using the Bahamian digital dollar.
Central Banks Around the World Eye CBDCs
It’s been no secret that central banks around the world have been studying digital currencies or are actively in the midst of developing them. As noted in this space in recent months, a Bank of International Settlements (BIS) survey found that a majority of central banks (more than 80 percent) are exploring CBDCs.
In terms of mechanics in the Bahamas, the Sand Dollar is issued directly into digital wallets that are in turn held by a half-dozen money transfer and payment firms. The coins are then spent through apps.
Notably, as reported by the newswire, the Sand Dollars in circulation total the equivalent of $130,000 U.S. But the Bahamian central bank has said that the digital dollars will eventually be available to all residents.
In other CBDC efforts, as reported in the fall, China’s central bank issued 10 million yuan ($1.5 million) of digital currency to 50,000 people chosen by lottery. The money is spendable at a number of retail locations.
Such central bank efforts toward CBDC might soon get a helping hand. This week, FinTech EMTECH said it’s launching a compliance platform in collaboration with Microsoft to help central banks test their respective CBDCs. The EMTECH Modern Central Bank Sandbox will assist central banks in setting up digital currency that’s interoperable and thus can be converted to other cryptocurrencies, and is compatible with payment devices and terminals worldwide.
The Bahamian effort offers a glimpse into the ways and means of issuing dollars for a country’s domestic use, but the FinTech efforts taking place in tandem with the central banks hint at a key challenge of digital fiat. Trade and commerce happen across borders, and conversion from, say, digital yuan to digital dollars is key.
In addition, there is any number of pathways a digital currency issuance can take. Cleveland Federal Reserve President Loretta Mester said in a speech in September that a digital dollar could conceivably be a form of money transfer that would enable the Fed to disburse money to all individuals in America (seemingly taking the approach that we are seeing in the Bahamas).
Meanwhile, the Boston Fed has been working with the Massachusetts Institute of Technology to explore the necessary tech infrastructure. In the meantime, the Sand Dollar’s launch in the Bahamas could do much to accelerate efforts to get digital currencies into consumers’ hands – and onto the world stage, too.
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