The Bahamas will require commercial banks to facilitate access to its “Sand Dollar” CBDC to boost adoption, aiming to enhance its use in everyday transactions. This regulatory move underscores the country’s leadership in the global shift towards digital currencies.
1 July 2024 – The Bahamas, the first country to issue a central bank digital currency (CBDC), is set to introduce regulations requiring commercial banks to facilitate access to its “Sand Dollar” e-money. This move aims to stimulate wider adoption of the digital currency, central bank governor John Rolle revealed to Reuters.
Having launched the Sand Dollar in 2020, the Bahamas is under close scrutiny by over 130 countries, including European and Asian nations, that are exploring digital versions of their own currencies. Despite its pioneering status, uptake of the Sand Dollar has been limited, prompting the central bank to take more assertive measures.
“We’ve begun to signal that to our institutions,” Rolle said during a London visit, indicating that the new regulations should be established within two years. He stressed that all commercial banks will eventually be required to provide their clients with access to the Sand Dollar.
This directive marks a significant shift in the relationship between central and commercial banks. While central banks see CBDCs as a means to modernize the financial system, commercial banks have expressed concerns about potential deposit flight, as CBDCs effectively offer the public direct access to central bank accounts.
The European Central Bank (ECB) has indicated it might mandate euro zone retailers and banks to accept a future digital euro. However, this development is still years away, placing the Bahamas at the forefront once again.
CBDCs come in two forms: retail, for public use, and wholesale, used by financial institutions. The Bahamas’ plan to require commercial banks to support the Sand Dollar will necessitate significant IT system changes, seen as essential for boosting CBDC adoption and mobile payments.
Currently, the Sand Dollar represents less than 1% of currency in circulation in the Bahamas. Wallet top-ups fell to $12 million in the eight months to August last year, down from $49.8 million in the same period the previous year.
Other nations with CBDCs, like Nigeria and Jamaica, are also experiencing minimal usage. Experts suggest this is partly because CBDCs do not yet offer clear advantages over existing payment methods and due to public concerns over potential government surveillance.
Rolle acknowledged that integrating the Sand Dollar into commercial banking systems should enhance usage. However, the larger goal is to increase acceptance among shops, restaurants, and other businesses. Unlike India, which has provided financial incentives during its e-rupee trials, the Bahamas will not offer such incentives or interest rates on Sand Dollar wallets, a concept Israel has considered.
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