The Caribbean is pioneering CBDCs with mixed results amid banking difficulties

The Caribbean is pioneering CBDCs with mixed results amid banking difficulties

Bankers in the Caribbean are facing difficult times. These 35 countries face the same problems as many small economies: dollarization, dependence on foreign trade, and remittances. De-risking, a common banking practice, is also causing serious problems. It is no surprise that the region is at the forefront in digital currency adoption.

Carmelle Cadet is the founder and CEO at Emtech banking solutions company. She is a native Haitian who has worked with central banks in Haiti, Ghana, and other countries. She is also part of the Digital Dollar Project Technical Sandbox Program, which is exploring aspects related to a digital currency for central banks in the United States (CBDC). Cadet spoke with Cointelegraph about her experiences living in the Caribbean and the United States. It was clear why she said that establishing functioning CBDCs in the Caribbean is “a difficult task.”

Banks in the Caribbean: The Risks

The Financial Action Task Force (FATF), lists countries under special surveillance for money laundering and other illegal activities. The so-called grey list, which included only four countries from the region, was published in June. However, it seems that the list casts a shadow over the entire region. It is important to do extra research when large international banks offer services like settlement to small local banks in these countries, a process known as correspondent relationships.

International banks are more expensive to do business with if they have done additional due diligence. Banks will often cut ties with banks located in gray-listed countries to avoid paying the higher costs. This is known as de-risking. Many Caribbean countries lost half of their correspondent relationships. This has severe consequences for their economies as well as their societies.

September 14th saw hearings by the United States House of Representatives Financial Services Committee entitled “When Banks Leave: The Effects of De-Risking in the Caribbean and Strategies for Ensuring Financial Access”. The hearings were attended by Mia Amor Mottley, Prime Minister of Barbados, and Keith Rowley, Prime Minister of Trinidad and Tobago.

#financialinclusion can be achieved: Modern #Regulatory Frameworks + #Technology. The cost of payments has not decreased as banks have moved out of the Caribbean. It’s almost like punishment. We are grateful that you gave your testimony before Congress about this topic. #bardados
— Carmelle Cadet (@CarmelleCadet) September 14, 2022

Mottley described the regional banking services:

Opening a bank account was a part of growing up. […] today we spend weeks just to open a bank accounts. Businesses that move into our region will spend weeks or even months just to open one.

On Sept. 24, Bahamian Prime minister Philip Davis brought up the topic of de-risking to the United Nations General Assembly ten days after the Congressional hearings. He asked, “Why are all these countries being targeted small and fragile and former colonies of European States?” The gray list does not include the Bahamas at this time.

CBDCs are the answer?

The Atlantic Council CBDC tracker shows that three CBDCs were launched in the Caribbean: the Bahamas’ Sand Dollar and Jamaica’s Jam-Dex. It also lists the Eastern Caribbean Central Bank DCash, which is located in seven of eight member states.

The council has listed Haiti’s Digital Gourde under development. Cadet stated that Emtech and HaitiPay presented a proof of concept for a CBDC to the Haitian Embassy in Washington, Washington on May 5.

Cadet was born in Haiti and immigrated to America in her youth. She was an executive at the IBM Blockchain division when the Bahamas requested proposals for the Sand Dollar. She was “lucky a little bit” in the front row. In 2019, as Haiti was going through a roadshow to develop its CBDC, Cadet stated, “If the Bahamas can do that, why not Haiti?” She said, “Kudos the central bank governor” for seeing the possibilities. She quit IBM to start Emtech.

After the 2010 earthquake in Haiti, the first financial technology companies emerged in Haiti. Technologies relying on mobile wallets were the leader, Jean Baden Dubois, Haitian Central Bank Governor, stated in 2021. Dubois stated that mobile phone penetration was 60% in 2008, and it is “likely to rise in 2021.”

Emtech’s proposed CBDC design worked online and via mobile phone unstructured supplementary data. Cadet stated that the rollout of a Haitian CBDC will include device distribution through partnership with a charity. She said that emerging economies are known for using telecommunications to support CBDC functions rather than data networks.

Dubois stated that the Haitian Central Bank saw the CBDC as a way to improve policy efficiency and transparency. This would allow the FATF gray-listed country to meet Anti-Money Laundering/Combating the Financing Of Terrorism standards.

Cadet stated that “Dollarization undermines central bank mission of stability.” “Using CBDCs to make cross-border payments would improve liquidity and visibility on reserve.”

Emerging markets’ peculiarities

Cadet stated that there are many ways in which CBDC designs for emerging markets will differ from those for developed markets. As they strive to settle real-time, developed markets can afford to slow down, she explained, while emerging markets have a greater need for CBDCs.

Related: A UK Startup Places Haitian Farmers And Their Crops on the Blockchain

She said that emerging markets have less baggage, which allows fintechs to thrive. While commercial banking is easier in developed markets, the CBDC has more legacy systems that can be integrated with.

It is unclear, however, how successful CBDCs are in the Caribbean. When it was launched in 2020, the Sand Dollar was widely considered to be the first CBDC. It had approximately $300,000 in electronic currency and 30,000 digital wallets. In July 2022, 845 merchants accepted it. It is promoted by the Bahamian government in regular efforts.

DCash was introduced in April 2021. It crashed in January, and was offline for nearly two months. Geo, a Grenada-based conglomerate, spokesmen. F. Huggins & Co. was the first company to accept a DCash payments.

Cadet stated that her company was in talks with the Haitian Central Bank for “to understand licensing risk” about a year prior to the proof-of-concept presentation. She has been in contact with the bank ever since. According to her, the company is currently waiting for the central banking to issue a request of proposals for vendors.

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