By: Staff Writer
May 7, 2021
A former International Monetary Fund (IMF) expert said that he is watching with interest the design and roll out of the various Caribbean digital currencies, hailing them as fraud and money laundering proof.
John Kiff, former senior financial sector expert at the IMF, said at the Royal Fidelity Bahamas Economic Outlook, 2021 that he has been looking “with interest” in the way the various Central Bank Digital Currencies (CBDCs), particularly the Sand Dollar in The Bahamas and the DCash in the Eastern Caribbean.
These CBDCs are interesting because they are designed to combat fraud and money laundering concerns by “calibrating” the right amount of supervision these CBDCs need versus private market digital currencies, or cryptocurrencies.
The Eastern Caribbean Central Bank launched the DCash in early April, but the Bahamian Sand Dollar digital currency was launched in October, 2019 and is now looking for nationwide roll-out before the end of the year.
Mr Kiff warned, however that cryptocurrencies have regulatory risks attached to them because all of them can be traded anonymously and large sums can be transferred without anyone knowing who the sender or the recipient is, which obviously leads to problems for regulators.
The Sand Dollar and DCash are not cryptocurrencies and are backed by their respective central banks, dollar for dollar.
Mr Kiff said that on the bright side, CBDCs can provide a space where they can classify and place all digital currencies into particular tiers, with the private sector digital/cryptocurrencies having different risk metrics by placing limits on how much cryptocurrencies can one person hold at a time and putting now standard Know Your Customer (KYC) diligence in the market for all digital currencies.
Mr Kiff also said that as a result of all of these tiers in the cryptocurrency space, for CBDC’s, central banks have begun to “remunerate” these CBDC’s, or in other words have began to “pay interest on these CBDCs.”
He warned however of the “downside” of remunerating these CBDC’s can lead to individual central banks raising interest rates on these CBDCs, thereby creating more interest in them and that would create other concerns where they become too attractive and they begin to compete with standard commercial banks.
He said: “The downside to that is that you make that interest rate too attractive, you compete now with the commercial banks and you have a problem, which they call disintermediation, where you make the interest rate so attractive that everybody wants to hold central bank digital currency. Of course, the banks do need these deposits, so they could lend out money and keep the, you know, keep the economy rolling, they have a problem they’ve been through then.
Mr Kiff also said that the good news about the proliferation of CBDC’s despite the inherent challenges for central bankers in calibrating their proper use next to hard, physical currency is that with the onset of the COVID-19 pandemic, people now want to be able to use digital options rather than exchanging physical assets hand-to-hand.