BANK OF JAMAICA ISSUES CBDCs
What is the recent announcement?
The Bank of Jamaica, has announced that it has started minting Central Bank Digital Currencies. This minting of CBDCs is merely the first batch. This implies that the Bank of Jamaica may mint more digital currencies in the coming months or years. The bank has planned to mint a total of $230 million in CBDCs!
With the introduction of this policy, Jamaica becomes one of the only countries to digitize payments on a nationwide level. The only existing country to do so is China. China had launched a digital Yuan in the country earlier this year.
Another country in the pipeline is India. The government of India had announced last week that it will launch the E-RUPI facility nationwide to facilitate digital transactions smoothly and in a centralized manner.
Moreover, Jamaica has taken a better step than El Salvador. Instead of making Bitcoin or any other stable coin as the country’s legal tender, it issued its own digital currency.
Issuing a central bank digital currency will have both positive and negative implications in Jamaica. Firstly, a CBDC will not have any volatility in its value as opposed to Bitcoin’s volatility in El Salvador. Moreover, the purchasing power of the Jamaican digital currency will not vary from time to time.
However, people will not be able to store this CBDC as an asset because its value does not appreciate on demand. If the country were to legalize Bitcoin as a legal tender instead, the citizens would stand to have huge capital gains.
What are CBDCs?
Central Bank Digital Currencies or CBDCs are, as the name suggests, digital currencies issued by the Central Bank. In this case, the central bank of Jamaica has minted its first batch of CBDCs. As we continue to progress through various stages of money, ranging from commodity money to paper money, an evolution was inevitable. Although not defined perfectly, the Central Bank Digital Currencies constitute a new stage of money and will be widely adopted in the future.
CBDCs combine the best of both worlds of fiat and cryptocurrencies. It adapts to the stability of fiat currencies. On the other hand, the feature of digital transfers at a quick speed resembles the feature of cryptocurrencies. However, CBDCs do not make use of a ledger system or a blockchain network. They are regulated instruments issued only by central banks of the respective countries.
What are its implications on Jamaica?
Thus, Jamaica has taken its first step towards permanent advancement through digitalization. It is likely that the government, the Jamaican economy as well as the citizens of Jamaica will stand to prosper following this decision from its central bank. Most citizens, if not all, will adopt the digital currencies in their day-to-day expenditures. Businesses and corporations will settle transactions digitally so as to facilitate convenience and better records.
The government will be able to regulate the supply of these digital currencies without having to worry about its stability.
Uneducated or illiterate people may also reap the benefits of the CBDC. Generally, old school citizens are wary of changes in the existing system. However, this masterstroke decision from the government is not a change, it is a revolution!
What are the benefits of this decision?
The decision will not only benefit the citizens but also for the government, economy and large institutions.
Benefits to Citizens:
- The CBDCs will enable convenience in paying money to another party.
- Transactions through digital currencies are settled at a rapid speed. It takes mere seconds to settle transactions digitally.
- Citizens need not worry about the stability of the digital currency as they differ from cryptocurrencies. The value of their CBDCs will not depreciate on account of forces of supply.
- The citizens will not have to run the risk of carrying physical cash everywhere. They can make payments digitally rather than through paper money.
- Records will be maintained for each and every transaction thus making it easier for households to keep a track of their expenses and income.
Benefits to Corporations:
- CBDCs can also be used to settle large volume transactions between huge institutions.
- The process of maintaining cash flow statements and balance sheets will become faster owing to the records of all digital transactions.
- Digital transactions improve transparency between institutions and the government.
Benefits to the Government of Jamaica:
- Since payments will be done digitally instead of on a cash basis, the supply of black money will reduce drastically.
- It will be easier for the government to track income and expenses of companies during tax collections.
- The Government of Jamaica will have full control over the supply of these CBDCs, thus shielding the economy from inflation.