Central Bank Digital Currency: The First Nationwide CBDC In The World Has Been Launched By The Bahamas – Forbes

SAND DOLLAR

Why is the Bahamas called the Bahamas? The Bahamas is an archipelago consisting of 700 islands scattered across a vast expanse of ocean; more than 470k square kilometers. Hence the plural. The name Ba Ha Ma could have originated in the Taino language of the early inhabitants.

The challenges for payment systems using digital payments or physical cash for such a scattered archipelago are understandable. A compelling reason for the launch of the digital B$, also called the sand dollar, is to support a payment system using a liability of The Central Bank Of The Bahamas, the safest form of payment in the Bahamas. In addition, it is meant to improve financial inclusion, reduce service delivery costs and increase transactional efficiency.

After a successful 2019 pilot on the island conglomeration of Exuma which reflects the configuration of the Bahamas; the digital B$ was launched yesterday according to a tweet from the Central Bank of the Bahamas. The sand dollar is the first ever nationwide Central Bank Digital Currency in the world. As a pilot location, Exuma is a smaller version of the Bahamas.

The total GDP of the Bahamas was around $12 B in 2018, the per capita income is one of the highest in the Americas, with a 90% penetration for mobile devices. In short, you could not have asked for a more ideal ground for the release of the worlds first CBDC; a relatively well-off, scattered population with high mobile penetration. The other twist in the story is that the B$ is pegged to the USD. So in effect, this can be seen as a pilot release of a digital USD by proxy.

The project itself is to create a digital currency ecosystem to support digital payments. The main feature is a digital version of the Bahamian dollar. Additionally, an ecosystem consisting of Authorized Financial Institutions (AFI) was created that provide services to the retail customers. This is in the form of KYC/AML checks, wallet services and custodial services for the sand dollar. AFI includes money transmitter businesses, payment service providers and commercial banks.

The AFIs can provide their own version of the sand dollar app (after a strict cyber security review) or use the baseline app provided by the central bank. The digital wallets are key components as they interact with retail customers. The wallets are segregated into three tiers, this is similar to the Chinese approach. The lowest tier does not require strict KYC/AML requirements and limits the amount of sand dollars held. The other two tiers have a risk based approach to KYC, for retail customers this increases the limits; however higher amounts are taken into the custody of the appropriate AFI. All businesses or payees have to be properly KYCed.

The wallets are secured with multi-factor authentication coupled with a common password and a one time password. Protections against sim-swapping are not known. A digital identity solution for the Bahamas is also being created in parallel with the sand dollar.

The sand dollar will not pay interest and cannot be held non-domestically. Hence payees not domiciled in the Bahamas cannot be directly paid using the sand dollar. However it can be used for all wholesale and retail transactions domestically. The sand dollar can be used 24/7/365 in disconnected settings and bear very low transaction fees.

The technical solution provider is NZIA, which has a novel architectural solution consisting of NZIA Cortex DLT (a blockchain platform) at its foundation, hardware nodes running the platform, with a hybrid wireless network at the top to connect the mobile devices. The hybrid wireless network provides connectivity in exacting ecosystems. Islands in the archipelago can lose power due to hurricanes, so this is a very crucial feature. The synchronization of the wallet will happen eventually when connections pick up again.

All in all, this is an important milestone in the development of CBDCs. The benefits are not quantifiable a priori, as with any far-reaching solution the effects are emergent. It requires a certain amount of courage to embark on such a project. A population created by forced globalization with a 90% Afro-Bahamian population, a history of piracy, known as a haven for escaped slaves, but a beacon for financial freedom and economic opportunity today, is the right setting for the release of such a revolutionary form of money. With one foot in the sea and one on land, Forward, Upward, Onward Together, as the motto of the Bahamas states.

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Central Bank Digital Currency: The First Nationwide CBDC In The World Has Been Launched By The Bahamas - Forbes