The Caribbean is in a difficult situation for banking. The 35 countries that make up the region face common challenges in many smaller economies, such as dollarization and dependence on foreign trade and remittances. In addition, the increasingly common banking practice called de-risking leads to huge losses. So, it is no coincidence that the region is also at the forefront of digital currency adoption.
Carmel Cadet, founder and CEO of banking solutions firm Emtech, is a Haitian citizen with experience working with central banks in Haiti and Ghana. Her company is also a member of the new Digital Dollar project’s tech sandbox program that explores aspects of the US Central Bank’s (CBDC) digital currency. Cadet spoke to Cointelegraph about her experiences in the Caribbean and the United States. She said the rollout of CBDCs operating in the region is a “long game”. It is easy to see why.
Risks of banking in the Caribbean
The Financial Action Task Force (FATF) lists countries that are under special surveillance for money laundering or other illegal activities. Although only four countries in the region were on the so-called gray list as of June, the list appears to overshadow the region as a whole. Because of this, additional due diligence efforts are required when large international banks provide services such as settlement to smaller domestic banks in those countries in a process called correspondent relationships.
Additional due diligence increases the costs of international banks for doing business. Banks often choose to cut ties with banks in gray-listed countries rather than pay the increased costs. This decision is referred to as not taking risks. Some Caribbean countries have lost 50% of their correspondent relationships, with dire consequences for their economies and societies.
The US House of Representatives Financial Services Committee held hearings titled “When to Leave Banks: Effects of De-risking on the Caribbean and Strategies to Ensure Financial Access” on September 14, Barbados Prime Minister Mia Amor Motley and Prime Minister of Trinidad and Tobago Keith Rowley attended the hearings.
#financialinclusion Possible: talk # organizational Frames + Modern #technology. Banks have moved away from the Caribbean and the cost of payments has not gone down. It looks like a punishment actually. Thank you for testifying before Congress on this topic! #Bardados https://t.co/SjLpSw1aT8
Carmel Cadet September 14, 2022
Motley described how banking services in the region:
“When we were growing up, opening a bank account was part of our rituals for becoming adults. Today […] We spend weeks, and companies that come to our area spend weeks and months just to open a bank account.”
After ten days of congressional hearings, on September 24, Bahamian Prime Minister Philip Davis brought the no-risk issue to the United Nations General Assembly. “Why are all the small, weak countries and former colonies of European nations targeted?” Asked. The Bahamas is not currently on the gray list.
CBDCs to the rescue?
According to the Atlantic Council’s CBDC tracker, three primary bank digital currencies have been launched in the Caribbean: the sandy islands of the Bahamas, Jam-Dex in Jamaica, and the Eastern Caribbean Central Bank DCash in seven of the eight member states.
The Council lists Haiti’s Digital Gorge as being in development. Cadet said Emtech and its Haitian partner, HaitiPay, presented a proof of concept for a CBDC at the Haitian Embassy in Washington on May 5.
Cadet, who immigrated to the United States in her youth, was an executive in the IBM blockchain division when the Bahamas applied for proposals for Sand Dollar. She was “a little lucky in the front seat.” Back in 2019, when Haiti was “touring with a roadshow” to develop its own CBDC, Cadet said, “I thought ‘If the Bahamas can do this, why not Haiti?'” She added, “Glory to the central bank governor for seeing the possibilities.” She left IBM and founded Emtech.
Haitian Central Bank Governor Jean Baden Dubois said in 2021 that the first fintech companies appeared in Haiti in 2010, after the earthquake that devastated the country, and technologies based on mobile phone wallets took the lead. 2008 and “probably higher in 2021.”
Emtech’s proposed CBDC design worked online and through an unstructured mobile supplemental service data. Cadet said the Haitian CBDC rollout will include distributing the hardware through a partnership with a charitable foundation. She added that the use of telecommunications rather than data networks to support CBDC functions is a hallmark of emerging economies.
Dubois said the Central Bank of Haiti sees the Haitian central bank as a way to achieve greater policy efficiency and increase transparency, which will help the FATF gray-listed country meet AML/CFT standards.
“Dollarization undermines the central bank and its stabilization mission,” Cadet said. “Using digital central bank currencies for cross-border payments would provide better liquidity and better visibility of reserves.”
characteristics of emerging markets
Cadet said there are a number of ways in which a CBDC design for an emerging market will differ from that for an emerging market. She said developed markets can “sustain slower progress,” as they work toward real-time settlement, while in emerging markets digital central bank currencies have a more urgent task of inclusion.
Related: UK startup puts Haitian farmers and their crops on the blockchain
She went on to say that emerging markets “have less baggage,” so fintech companies can thrive. In developed markets, commercial banking can make adoption easier, but CBDCs have more legacy systems to integrate with.
Whatever the case, it is not clear how successful CBDCs are in the Caribbean. Sanddollar, which is generally considered the first central bank digital currency when launched in 2020, had only about $300,000 worth of e-currency and 30,000 digital wallets in July 2022, with about 845 merchants accepted. The Bahamian government makes regular efforts to promote it.
DCash, which was introduced in April 2021, crashed in January and has been idle for about two months. A spokesperson for Grenada-based Geo. F. Huggins & Co. said: , which was the first company to accept DCash payments, during the outage said that CBDCs represented a “negligible” portion of its sales.
Cadet said her company had been in talks with Haiti’s central bank to “understand the licensing and risks” for about a year before submitting the proof of concept, and has been in touch with the bank ever since. She said the company is now waiting for the central bank to issue an RFP to the sellers.
from San Jose News Bulletin https://sjnewsbulletin.com/the-caribbean-is-a-leader-in-digital-central-bank-currencies-with-mixed-results-amid-banking-difficulties/
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