The Sand Dollar digital currency was made available nationwide as of Tuesday, according to the Central Bank of The Bahamas (CBOB), with the Sand Dollar’s dedicated social media pages urging Bahamians to sign up for a digital payment wallet with any of the registered supervised financial institutions – Omni Financial Group, Money Maxx, Kanoo, Mobile Assist, Cash N’ Go and Sun Cash.
CBOB Governor John Rolle told Guardian Business yesterday that the Sand Dollar will not be treated like a deposit instrument, but a limited amount of funds will be able to be kept in the wallet until spent.
“No interest will be paid on these amounts either by the Central Bank or by those financial institutions that hold funds custody within digital payment wallets,” Rolle said.
“By regulations under the Bahamas Payments System Act, funds placed in mobile payment wallets of any form cannot be treated like deposits. This means they must be kept 100 percent in custody until spent or transferred by the wallet holders. This eliminates any pretense that funds held for payment transactions can be used for other intermediation purposes, such as lending or investing.
“In addition, the Central Bank has imposed limits on how much digital currency can be stored in payment wallets, while emphasizing instead greater flexibility on the volume of transactions that wallet holders can undertake. Our system dictates that surplus Sand Dollars must be transferred into bank deposit accounts.”
Sand Dollar was first introduced into the Exuma economy in its pilot phase and then introduced to Abaco following Hurricane Dorian in order to maintain financial inclusion on the island while payment systems were scarce and in some instances defunct.
Rolle said Sand Dollar will promote lower cost payments transactions that complement the services provided by commercial banks.
“In this respect, it challenges the existing cost and efficiency of payments transactions in The Bahamas,” he said.
“Local banks are fully expected to adapt and participate in this space. They will have the advantage of extending the reach of traditional services to customers in remote communities, as it will even reduce the pressure to maintain extensive physical ABM networks.
“Banks will also have the advantage of add-ons, which centralize electronic KYC (know your customer) data, prompting swifter, less costly access to banking services. This is a foreshadowed benefit for the local banking sector.”
Credit ratings agency Moody’s, in a look at the potential of digital currencies, contended that they could eventually hurt commercial banks.
“Consequences for banks could be profound,” a Moody’s review stated.
“Some forms of CBDC (central bank digital currency) would have profound negative consequences for commercial banks, since the CBDC would displace their current role in the payments system and force changes in their funding model.
“Even the less disruptive hybrid model would likely impose new costs on banks and reinforce existing pressures on banks’ business models.”
However, Rolle said the Sand Dollar model is not designed in this way.
“A lot of the models that drive theoretical conclusions about central bank digital currencies depart from the realities of how a Bahamian central bank digital currency would work,” Rolle said.
“They often conceive digital currency as indistinguishable from deposits, other than originating as a liability of a central bank.”