The Central Bank of The Bahamas (CBOB) announced the national release of its digital currency the Sand Dollar, beginning October 20, which will be rolled out in phases.
The first phase is targeted at ensuring the private sector is ready for the new Central Bank digital currency, and will cover all three tiers of authorized accounts.
“These account tiers are each subject to risk-based customer due diligence or KYC (know your customer) requirements. These are low-value personal wallets with the least demanding account opening requirements but with more restricted transaction limits; regular personal accounts in line with the established, flexible customer due diligence for existing banking and financial services; and business or enterprise accounts, subject to further KYC rigor and with higher limits for transactions and holdings of the digital currency,” the CBOB said in an extensive release this weekend.
“Engagement and outreach with key private stakeholders will intensify in the months ahead, extending into the first quarter of 2021. The second phase of national engagement will target government services and public utilities, becoming more intensive over the course of the first and second quarters of 2021.”
The CBOB launched its digital currency, called Project Sand Dollar, last December, with a pilot program that started on Exuma and eventually launched on Abaco earlier this year.
The aim of Project Sand Dollar is for financial inclusion for all residents in The Bahamas by way of access to a Central Bank digital currency, on a modernized technology platform, with an experience and convenience — legally and otherwise — that resembles cash.
In recent years commercial banks have pulled out of far flung islands, closing branches and leaving residents on many Family Islands without the means to conduct banking services.
For this reason, the Central Bank said these communities will see a prioritization in the initial period following the full roll out.
“Although average measures of financial development and access in The Bahamas are high by international standards, pockets of the population are excluded because of the remoteness of some communities outside of the cost-effective reach of physical banking services,” the CBOB said.
“While the Central Bank is participating in the development of a broader national financial inclusion strategy that would address these issues, improved access to payments services would provide the conduit through which other financial services could be more easily reached.
“This strategy would also rely on sustained financial literacy campaigns to boost product awareness and encourage more positive behavior around personal finances. Embracing electronic payments at higher rates will also require education around cyber safe financial behavior.”
To date, eight financial intermediaries – which are supervised financial institutions that would be allowed to operate as sponsors of mobile payment wallets and are eligible to maintain clearing accounts with the Central Bank – have been onboard as Sand Dollar authorized financial institutions, including four money transmission businesses, three payment service providers and one commercial bank.
“Banks and credit unions are also Sand Dollar AFIs. At the onset, these institutions are expected to contribute to the customer due diligence regime and facilitate connectivity of deposit accounts with mobile wallets,” the CBOB said.
“The Central Bank maintains separate engagements with banks and credit unions to assist with their readiness to offer clients Sand Dollars on schedules that more closely align with 2021 and tailored retail engagement strategies adopted by each institution. Banking sector integration is enabled in the first instance through the ACH that will link deposit accounts with digital currency wallets.”
Cyber protection enhancements
Despite these advancements, the Central Bank said recent surveys revealed that the public remains uneasy about the safety of conducting online transactions, which has led to the Sand Dollar platform undergoing a rigorous cybersecurity assessment.
“All Sand Dollar AFIs are required to complete robust and intensive cybersecurity assessments by an independent international firm before receiving approval to integrate the Sand Dollar platform with their custom applications,” the CBOB said.
“Six AFIs are in the final stages of this cybersecurity assessment, which evaluates their custom apps, the overall security posture of the business and reviews the coding practices applied in application development. As to security, Sand Dollar-integrated wallets are enabled with multi-factor authentication features. All mobile devices are required to support a device passcode or biometrics to access the app and complete transactions. These, of course, will be supplemented by the due care and attention that each digital payment user will be required to observe for all transactions which they undertake.
“Although the anonymity feature of cash is not being replicated, the Sand Dollar infrastructure incorporates strict attention to confidentiality and data protection. Each wallet provides a unique set of data encryption to ensure privacy and confidentiality.”
The national rollout of the digital currency comes after the government recently passed the Central Bank of The Bahamas Bill, 2020 and as draft regulations, currently under final review, are being prepared for public consultation sometime next month.
“The Bahamian digital currency framework will rely on an evolved regulatory structure for domestic payments and other financial services. The Central Bank remains actively engaged with stakeholders to ensure that the legal framework develops in tandem with payments systems needs,” the CBOB said.
“The Central Bank is also ensuring that adequate safeguards and policies are imposed to address the integrity of financial transactions, aligned with best international standards for AML/CFT and that resilient mechanisms are instituted to preserve financial stability and maintain private financial institutions’ central role in the financial intermediation process.”
The Central Bank currently has close to $48,000 in Sand Dollars on its balance sheet, according to a recent Bloomberg magazine report.