By NEIL HARTNELL
Tribune Business Editor
The Central Bank is aiming to roll-out a trial digital Bahamian dollar "within 30 months", with the move central to its efforts to "accelerate" payments system modernisation.
The regulator, launching an Expression of Interest (EoI) for the design and implementation of a digital currency, said the introduction of technology-based financial services (fintech) was key to both reducing Bahamians' reliance on cash and combating the loss of physical bank branches as institutions withdraw from the Family Islands.
With the likes of Long Island now lacking a fully operational commercial bank, following pull-outs by the likes of Royal Bank of Canada (RBC), the Central Bank's EoI document suggested it was becoming "increasingly less feasible" for such institutions to provide a physical presence in sparsely populated islands.
The solution to "financial inclusion", it added, was through the provision of electronic and digital payment services, possibly using technology such as blockchain. The Central Bank is now setting its sights on the design and implementation of a Bahamian digital dollar by 2021, with the initiative billed as the "next phase" in plans to modernise this nation's payments infrastructure.
"It is anticipated that a piloted version of a digital fiat currency would be in circulation within 30 months, and offer security and versatility over a life cycle process for managing currency that is superior to cash," the Central Bank's EoI says.
It added that there should be "negligible cost frictions" for merchants and retailers accepting digital currency, with the Central Bank requiring interested parties to supply a digital identification system as "an essential precursor".
John Rolle, the Central Bank's governor, could not be contacted for comment, but the EoI said: "To advance more inclusive access to regulated payments and other financial services for under-serviced communities and socio-economic groups, the Bank is accelerating the Bahamas' Payments System Modernisation Initiative (PSMI), and exploring the introduction of a digital currency as the next phase in this process.
"As an archipelago, The Bahamas is made up of many dispersed, low-density communities, for which provision of market-based financial services through physical installed infrastructure has either not been feasible or is becoming increasingly less feasible.
"The Bank expects that the accelerated adoption of fintech solutions would reduce service delivery costs and improve the level of financial inclusion across all communities in The Bahamas. The Bank also sees scope to boost inclusion and access in the more populated, developed markets of The Bahamas.
"Moreover, through reducing economy-wide use of physical cash, the Bank expects to strengthen national safeguards against money laundering, terrorism financing and other criminal acts more easily facilitated by cash."
The Central Bank EoI said traditional models for providing financial services in the Bahamas were now being challenged to generate a return on investment (ROI) by the country's population size and distribution. This made it "imperative" that there be a "universal transition from cash dependence in the remote, lesser populated islands of the Bahamas".
"In particular, The Bahamas' total population of approximately 400,000 is distributed across at least 21 separately inhabited land masses, with a least a mile of water between each," the Central Bank said.
"Moreover, about 70 percent of the population resides on New Providence, and another 14 percent and 5 percent, respectively on Grand Bahama and the Abacos. By unofficial estimates, undocumented immigrants make up about 10-15 percent of the population and are not well integrated into the regulated financial system."
The Central Bank acknowledged that a digital version of the Bahamian dollar will require legal and regulatory reforms, plus changes to consumer and data protection laws.
The EoI calls for interested parties to provide blockchain or other technology-based solutions, although it says there is no guarantee the process will lead to a formal Request for Proposal (RFP). The document, which requests replies by September 15, appears designed to find out 'what's out there' - namely the capabilities and experience of interested parties, and the solutions they can provide.
"The Bank expects to identify the best fit-for-purpose solution having regard to any possibility of existing digital payments solutions, including but not limited to distributed ledger technology and/or blockchain services, [and] interoperability needs across all payments system participants," the EoI said.