In October 2020, The Bahamas became the first country to deploy a nationwide CBDC by introducing the Sand Dollar. The Sand Dollar is pegged 1-for-1 to the Bahamian dollar, the currency of The Bahamas, which is, in turn, pegged 1-for-1 to the U.S. dollar. The intended outcome is to provide all Bahamas residents with an access to Sand Dollar, on a futuristic technology platform with an experience and convenience that resembles cash.
The CBDC is available for both wholesale and retail applications. Wholesale application would ordinarily restrict usage to payments settlements at the inter-bank level, akin to clearing house transactions.
Use-Cases:
1.) Access to financial services
Problem: The Bahamas is an archipelago consisting of 700 islands scattered across a vast expanse of ocean, thus accessing financial services involves significant cost and time.
Solution: Sand Dollar would be easier to distribute and access than cash, especially among the underbanked and unbanked.
2.) Increase the efficiency of Bahamian payment systems
Problem: Even though the payment systems in Bahamas are advanced, there is still a potential to cut down the intermediary processing costs. The ACH processes millions of transactions on a monthly basis. Although the ACH fees are minimal, banks attach addition direct costs to transactions, while merchant fees are levied for debit and credit transactions.
Solution: CBDC would allow peer to peer wallet transfers, thus eliminating any intermediary and associated costs.
3.) Offline access to CBDC
Problem: The Bahamas is prone to frequent communication disruptions because of hurricanes.
Solution: A pre-loaded CBDC card would allow offline payments even if the communication between the islands is disconnected.
4.) Payroll Processing with CBDC
Problem: Bahama Eats incurs bank fees and payroll administration time (and related costs) when paying employee salaries.
Solution: Some of the Bahama Eats employees are being paid their salaries in CBDC thus saving on costs.
5.) Strengthening AML and CFT processes
Problem: Cash makes laundering of money easy as well as illegal movements of money for terrorist, criminal and narcotics purposes.
Solution: CBDC would allow central bank keeping an eye on every suspicious transaction. Further enhancements to the AML/CFT regime would also favour the standing of the international financial services sector and cut into national risks assessments that affect the ease of access to correspondent banking relationships.
Design Considerations:
Any resident can have a CBDC account created by approaching any of the participating financial institutions.
Sand dollar payment occurs in a secure tokenized environment, requiring just the mobile phone, or the dedicated point of sales terminals that businesses deploy. The simple payment process will utilize QR codes generated on the payer’s digital Sand Dollar Card or the mobile device. A customer would then scan merchant’s static QR code, and confirm the amount. A payment can also be made via their Sand Dollar unique handle, alias or address.
Solution:
Results:
As of data published in Sep 2022 by Central Bank of Bahamas, there were 32,736 wallets which is 10% of the adult population(age 15+). As of Feb 28, 2023 CBOB report, Total Sand dollar amount in circulation was 1,025,892 which is 0.19% of the total currency in circulation which is really low.
Im my opinion, the reason it’s not performing well is because of the lack of awareness, availability and trust among residents. Further, the motivation of financial inclusion is not really a big problem and the solution itself is not the right one. There are existing alternatives that can improve the final inclusion much better.
93% of Exumans had some form of deposit account and 90% had a debit card. The group with the lowest rate of account ownership were those aged 55 and above. This segment is anyways resistant to using digital payments.
The sand dollar was meant to increase access to digital payments. It is too early to make any conclusions and it definitely has a strong potential to reduce cash usage and improve payment system efficiency in the longer run. In order to tackle financial inclusion problem, the obvious alternative to CBDC is to encourage greater use of bank issued debit cards and/or introduce prepaid cards which can be refilled across next door grocery store. Also, Government should spend more efforts to educate the older generation in the use of electronic payments.
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