It’s not often that the Caribbean is first to market in the technology space but in February the Eastern Caribbean Central Bank (ECCB) signed a landmark agreement pioneering the world’s first blockchain-backed currency issued by a central bank.
“The journey of the ECCU has always been marked by bold initiatives and forays into the unknown to pioneer a path for the region’s survival and success,” says the ECCB FinTech Working Group which has been developing the initiative in partnership with Barbados fintech firm Bitt Inc. The project will create a digital version of the EC dollar (DXCD), distributed and used by licensed institutions for financial transactions, with plans to eventually phase it into public use. According to the FinTech Working Group: “The long-term strategic objective is to explore the suitability of a digital EC currency, underpinned by distributed ledger technology/blockchain, to help advance economic growth, resilience, competitiveness and financial inclusion in the ECCU.”
What is blockchain?
The Central Bank digital currency will be backed by blockchain, a form of electronic ledger. Broadly speaking, blockchain consists of individual blocks or records, linked together. Each user on the chain only has access to their particular block, meaning that they can only edit their own individual records. The blocks are linked and timestamped by a programme that ensures they are kept in sync with each other. Decentralising the records in this way makes them more secure and less susceptible to breaches. If a breach does occur, it can be easily contained without putting the entire system at risk.
“Blockchain can be leveraged to provide a decentralized payment and settlement system that can potentially facilitate broader access to the financial system, quicker and more easily verifiable settlement of transactions and payments, and lower transaction costs,” says the ECCB FinTech Working Group. “In the region, this can help boost economic growth, competitiveness, resilience and financial inclusion consistent with the ECCB’s monetary and financial stability objectives.”
Blockchain was first introduced in 2009 to enable bitcoin transactions, and is now a significant disruptor to financial markets worldwide as institutions realise its benefits. A number of innovative Caribbean tech entrepreneurs have also adopted the technology for use in niche applications such as marine archaeology and tourism.
How will the digital dollar be rolled out?
The current initiative is a pilot, so it will be some time before the average citizen is paying for their purchases with digital dollars. The development and testing phase, which is expected to last around twelve months, will be followed by a six-month rollout and implementation in selected pilot countries.
The currency is being trialled in four member countries rather than the entire Eastern Caribbean so that it can be tweaked and tested in a manageable and controlled environment. According to the ECCB FinTech Working Group, pilot countries will be selected “based on interest in participating [and] other criteria such as institutional capacity, geographic representation and supporting technology infrastructure.”
It may be tested in a few locations but feedback and engagement will take place throughout all the member states as the ECCB seeks to educate and inform all citizens. The Bank met with stakeholders, including financial institutions, professional associations, merchants and private sector bodies, from May to December last year and says the response was “significant and generally positive”.
This type of sandbox-style testing, where initiatives are rolled out in controlled environments, is common in the FinTech space and is being embraced by the ECCB as a way to monitor, evaluate and protect participants while maintaining financial and regulatory stability. “Innovation is critical to propelling private sector development and growth,” according to the ECCB FinTech Working Group. “Sandbox arrangements allow for the testing of innovative propositions in the market with real consumers in controlled environments with relaxed regulations.”
How will it impact EC citizens?
This latest leap forward in the region’s fintech capability has been widely welcomed by stakeholders with the Caribbean Association of Banks calling it “a bold step” and adding: “With the advent of the digital EC dollar the region is being thrust to the forefront of financial technology. The potential benefits of digital currency are many, for banks, vendors and customers. Aside from a lower reliance on cash, and a reduction in overall transactional costs, a secure, resilient digital payment and settlement platform is expected to have a net positive effect on the growth and development of the Caribbean financial sector.”
Once it has been fully vetted and approved, there are plans to take the digital dollar mainstream so that the general public can benefit from easier, quicker and more secure transitions enabled straight from their personal devices. These digital wallets will provide an alternative to cash, cheques, debit card and wire transfers. The online currency is not designed to eliminate cash entirely, but provide other options for those who want more diverse ways to pay or transfer funds. For businesses, a digital currency can help them target and serve both new and existing markets regionally by making it easier to process transactions across borders, and eliminating the need for debit and credit card payment platforms or wire transfers.
The new digital currency will feature easy to use payment and transfer platforms with no minimum spending amount, no minimum account balances and a private data feature to ensure all information is secured. The ECCB hopes it will improve financial inclusion, promote trade and boost resiliency in the financial sector.
