Digital currency will boost gov’t service delivery and financial inclusion

The Government is pushing to digitise welfare payments through the Central Bank Digital Currency (CBDC), which is coming on stream in the coming months.

CBDC is a fiat currency, which means it can be exchanged, dollar for dollar, with actual cash and is issued to licensed deposit-taking institutions on a wholesale basis. The pilot phase for CBDC is May – December 2021.

The Bank of Jamaica (BOJ), which is introducing the CBDC, anticipates that its introduction, slated for 2022, will serve to bolster government service delivery and boost financial inclusion.

BOJ Deputy Governor Robert Stennett explains that, ”the CBDC will facilitate the ability of the public sector to engage with stakeholders… particularly where welfare payments are concerned”.

Speaking on Thursday (May 27) during aPlanning Institute of Jamaica’s (PIOJ) Growth Inducement Programme annual digital Economic Growth Forum, Stennett acknowledged that, in several instances, welfare payments required significant time and energy by beneficiaries to access the funds.  

According to him, “with the CBDC, their account, if they get one, will be instantaneously credited… and to the extent that the facility is in their area, they will be able to [access] it without any cost.”

CBDC will boost cost reduction

Deputy Governor Stennett explained that the BOJ will also benefit from a significant reduction in the costs associated with procuring and disbursing currency through local financial institutions.

“The CBDC is essentially a one-for-one replacement with currency. So all the features of the physical paper will be reposed in the digital currency [and] it will be fully acceptable as a means of payment. So we expect to actually come out net positive after we have replaced a unit of currency with CBDC,” he pointed out.

The BOJ is now undertaking a seven-month CBDC pilot, from May to December 2021, utilizing its Fintech Regulatory Sandbox. The Sandbox is designed to provide a platform to encourage innovations in financial services and promote competition and financial inclusion, as well as inform the framing of new or amendment of existing regulations.

For his part BOJ Governor Richard Byles pointed out that the challenges arising in relation to the deployment of funds to beneficiaries under the multibillion-dollar COVID-19 Allocation of Resources to Employees (CARE) Programme, highlights the need for the CBDC.

According to the BOJ governor, “the simple act of trying to get government support out to those who [were] most in need became very difficult, because many Jamaicans are not part of the financial network and also because a lot of the banking [arrangements are] still not digitised. I think that there is a greater need for financial inclusion and digitization of the Jamaican economy, and that is one of the issues that we hope to rectify with the CBDC”.

Byles was speaking during the PIOJ Economic Growth Forum, which was held under the theme ‘Towards Long-Term Resilience and Stable Growth’.