The Central Bank of Jamaica recently announced that it will launch its own central bank digital currency (CBDC), called the Jamaica Digital Exchange, or Jam-Dex, in the first quarter of 2022. According to the Jamaican government, the national digital currency will help reduce transaction costs while allowing the unbanked to access financial services.
It is estimated that more than 17% of Jamaicans do not have banking access, but it is feared that many more have less banking access. This is mainly due to systemic financial sector constraints. High transaction costs, in particular, are a major limitation. As a result, many Jamaicans believe that banks are the preserve of the wealthy.
That said, internet penetration in Jamaica stands at an impressively high 55%, while mobile phone usage stands at 100%. The Jamaican government is banking on these positive technological dynamics to drive the adoption of its national digital currency.
As things stand, Jamaica’s banking sector is highly centralized. The two banks dominate over 60% of the country’s entire banking sector. The situation has brought healthy competition and has given rise to a compounding of regressive elite issues such as high interest rates.
According to local parliament member Fitz Jackson, Jamaican banks have also raised transaction fees, which “punish depositors for keeping money in the bank”. The Jamaican government seeks to reverse these repressive financial service trends by introducing the JAM-DEX digital currency. This will help to move the country’s financial system away from the control of monopolistic banking giants.
rise in the next few years
More than 70% of the Jamaican population is expected to adopt the new digital currency in the next five years. The country’s central bank, the Bank of Jamaica, expects at least 5% of the Jamaican dollar to be in circulation every year for the next few years.
The establishment has lauded Jam-Dex as a solution for greater transparency. All transactions done on the Jam-Dex network, including government welfare payments, will be traceable to enhance accountability.
Jamaica’s central bank recently issued a total of about six million Jamaican dollars, or $44,000, to two major banks to conduct real-world testing of the Jam-Dex network ahead of its official launch.
Customers wishing to use Jam-Dex will need to sign up for a digital wallet and make a deposit through an accredited Jamaican financial institution.
Problems faced by unbanked people in Jamaica
By avoiding regulated financial institutions, many unbanked Jamaicans miss out on progressive socio-economic opportunities. Some government and non-profit aid programs, for example, use regulated financial institutions to distribute monetary aid. Because there are no bank accounts without bank accounts, many of them are left out.
Speaking to Cointelegraph, Daniel Polotsky, the founder of Coinflip, the largest Bitcoin (BTC) ATM network in the US, said:
“Users looking to open traditional bank accounts go through tedious approval processes and are usually exposed to potential overdraft fees or other hidden expenses they often cannot pay.”
Another problem that remains unbanked is the dependence on exploitative credit sources. Many of them are likely to take out payday loans due to their lack of access to formal credit institutions. Payday loans are incredibly expensive to finance.
Many Jamaicans are hooked to such services because it is easier to access loans, especially during emergencies. This eventually leads to a vicious cycle.
The lack of credit history among the unbanked in Jamaica further contributes to their economic isolation. Credit history is usually required by employers, insurance companies and landlords when considering assistance and compensation. Since unbanked individuals rarely have these records, they may not get the help they need.
Many unbanked people also do not have enough savings and when they do, they keep the money in unsecured places, usually at home. This makes money more vulnerable to risks such as theft.
Jamaica CBDC aims to provide financial services to the unbanked, helping them overcome many of the above problems.
More Inclusion with CBDCs
Jamaica’s digital currency is set to have a disruptive effect on Jamaica’s financial sector, especially for its unbanked citizens.
Financial inclusion of unbanked Jamaica requires the implementation of a radical financial system that promotes inclusivity, and Jam-Dex has the necessary qualities to achieve this.
Polotsky highlighted the importance of such CBDCs:
“Central bank digital currencies like Jamaica are an important step in creating wider familiarity around digital currencies. They give less banking facilities and unbanked individuals the opportunity to hold and send cash digitally at lower fees than traditional banks, Which could be significant. While they will not replace cryptocurrencies, these currencies can seamlessly co-exist in our digital world.”
He also explained that the new Jamaican digital currency would help popularize the use of major deflationary cryptocurrencies such as bitcoin, which are typically used to hedge against inflation.
Government agencies concerned with using the digital currency will be able to monitor the purchase of subsidized goods and detect price discrepancies.
Consumer pricing and counter pricing
The rollout of the Jamaican digital currency will enable the government to counter price cartels, especially in cases where prices need to be regulated. Such scenarios usually occur when government subsidies cover certain products.
In recent years, Jamaican legislators have moved swiftly to enact laws deterring price cartels, especially in times of disaster. Price hikes in the country are particularly rampant during hurricane season when opportunistic traders increase the prices of construction materials such as timber, tarpaulins and zinc sheets.
During the start of the COVID-19 pandemic, disinfectants, hand sanitizers and masks were targeted by Jamaica’s price-pricing cartel, forcing the government to intervene. Retailers found to be under-pricing were fined up to $2 million Jamaican dollars, or $13,066 at the time of writing.
Of course, verifying each reported pricing case is a time-consuming process. The Jamaican digital currency will make it easier for authorities to verify such reports by analyzing point-of-sale records on the blockchain.
combating money laundering
Jamaica’s Basel AML Index score in 2021 was 5.77. The country’s index has been on a downtrend since 2017. The current rating means that Jamaica is at high risk of money laundering and terrorist financing schemes. The composite index score considers a number of factors, including the country’s level of corruption, its financial standards, adherence to the rule of law and political disclosure.
In 2020, Jamaica was added to the European Union’s blacklisted countries after the European Union found that Jamaica’s Anti-Money Laundering (AML) protocol was lacking.
The country was also included in the Financial Action Task Force gray list, a move that barred Jamaican merchants and customers from transacting on major international retail platforms.
The introduction of the Jamaica digital currency is expected to improve transparency of transactions and help the country address its current AML issues.
more effective monetary policies
The rollout of the Jamaica digital currency will enable the country’s central bank to track transactions aimed at reforming monetary policies.
For example, the central bank will be able to establish an overall credit score in comparison to loans when making relevant regulatory regulations.
The CBDC will also help the surveillance authorities to crack down on businesses involved in tax evasion schemes. This is thanks to Jam-Dex’s ability to trace transactions.
The Jamaican digital currency is bound to bring many benefits to the Caribbean island nation. Still, it is likely to take a long time to adopt due to resistance from politicians and a population apprehensive of government surveillance.
A section of politicians has already accused the Jamaican government of bribery when it recently announced a $2,500 Jamaican stimulus to the first 100,000 Jam-Dex users.
Full adoption of the JAM-DEX digital currency is expected to take several years due to initial problems.
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