Regulatory Framework Exists For Introduction Of Central Bank Digital Currency

The Bank of Jamaica (BOJ) has said that the regulatory framework already exists within the financial sector to allay concerns about the introduction of a central bank digital currency (CBDC).

Speaking in a recent Jamaica Information Service (JIS) ‘Get the Facts’ television interview, Director of the BOJ’s Payment System Policy & Development Department, Mario Griffiths, addressed concerns about the risks of using a digital currency and some misconceptions the public may have.

By way of risks, Mr. Griffiths acknowledged that chief among them are money laundering and counter-financing of terrorism; data privacy and data protection; and cybersecurity. These, he said, have been taken into consideration by the BOJ and will be mitigated by existing regulatory framework.

“In terms of anti-money laundering, we have ensured that there is intermediation where the central bank will issue CBDC to the financial institutions as well as authorised payment service providers that are regulated by the Bank of Jamaica. A user may be able to open a wallet at these institutions – we call them wallet providers. Your wallet provider will open an account for you and they will acquire all your information as they do now for a regular deposit or bank account,” he noted.

“So, they know your customer information or your due diligence – your name, your address, your TRN and your photo ID. They will hold that information, so that risk is mitigated by the existing supervisory and regulatory framework,” Mr. Griffiths added.

This is considered a hybrid distribution model, where the BOJ will issue the digital currency to financial institutions or wallet providers, who will them distribute it throughout the economy.

Wallet providers have been identified as financial institutions, such as deposit-taking institutions, commercial banks, building societies, merchant banks and authorised payment service providers.

“In terms of data protection and privacy, only your institution will know that you are you and they will ensure that this is protected. Not to mention that the technology underneath the central bank digital currency decouples the money from your identity, so only the institution that you opened the wallet with will be able to identify you with the money,” Mr. Griffiths pointed out.

He explained that CBDC differs from cryptocurrency and is not meant to replace cash or other methods of payment.

“A central bank digital currency is issued and backed by a central authority. In our case, it is the Bank of Jamaica. It’s a liability of the Bank of Jamaica and I want to compare that to cryptocurrencies that exist on the market. Those are issued by a private entity. It’s a claim on a private entity. Some are decentralised and there are a number of decision makers that we would not know about, but in the case of a CBDC, we want persons to come to us, the Bank of Jamaica, or wherever they have their wallet, so it is totally different,” Mr. Griffiths emphasised.

“Also, with cryptocurrency, there is no steady value, but with CBDC it is 1:1. So, if you have $1 and you convert it to CBDC it will be one for one, so it is the same and the technology affords you to convert from CDBC in a digital form, back to paper form,” he noted.

Mr. Griffiths said that the central bank digital currency will be added to the existing list of payment instruments and not considered a replacement to any.

“We will not be phasing out bank notes and coins. CBDC is a complement to cash. They will all coexist within the retail payment market, so you will have CBDC and you will also have bank notes, coins, debit cards, credit cards, cheques and online platforms,” he added.

Along with a greater level of inclusion in the financial system, the introduction of a central bank digital currency is believed to bring about efficiencies at the central bank, cost reduction for businesses that manage money and its circulation and can aid the Government in the execution of social programmes, like the COVID-19 Allocation of Resources for Employees (CARE) programme and the Programme of Advancement through Health and Education (PATH).

To raise awareness and secure stakeholder buy-in, the Bank of Jamaica has been in contact with key stakeholders, including telecommunications providers, financial institutions, toll operators, the Office of Utilities Regulation, Tax Administration Jamaica and the Ministry of Finance and the Public Service.