Inclusion

The Bahamas is ‘disaster-proofing’ payments with its first-ever digital currency

February 18, 2021 | By Vicki Hyman

In September 2019, Hurricane Dorian stalled over the northern Bahamas. The slow-moving storm inundated the Abaco Islands, killing dozens and causing $3 billion in damage. Banks and businesses shut down and tourism, which employs thousands, evaporated. Just as the economy started to recover, the pandemic hit.

It was a one-two punch unlike any other. And for John Rolle, governor of the Central Bank of The Bahamas, it called for a response unlike any other.

Like a growing number of countries across the world, The Bahamas has explored issuing its own digital currency, an equivalent version of paper currency but available only in a virtual form. With islands scattered across 5,000 square miles of the Atlantic Ocean, some of which are heavily reliant on cash, the country could offer digital currency as a way for citizens to store, save and spend their money safely through their phones. They could even access government-issued near-instant aid or receive insurance payouts in the wake of a disaster like Dorian.

When banks and ATMs are physically damaged by natural disasters, the aid system available is often bare-bones essentials that deprive people of the “dignity of choice,” Rolle said in a phone interview this week. Because restoring mobile phone coverage takes far less time than rebuilding a bank, a central bank-issued digital currency (CBDC) could bring needed relief to citizens much faster.

Within months of Hurricane Dorian, The Bahamas piloted its own digital currency, called the Sand Dollar, on the Exuma and Abacos island chains. In October, it became the first country globally to offer a CBDC nationwide. “We want to accelerate the ease by which we can plan for recovery,” Rolle said.

To make it easier for Bahamians to spend their digital dollars, the licensed digital payment platform Island Pay on Wednesday announced it partnered with Mastercard to issue the first-ever prepaid card linked to a CBDC, giving residents the option to instantly convert their Sand Dollars to Bahamian dollars to spend anywhere Mastercard is accepted on the islands and around the world.

As technology and connectivity have enabled the rise of mobile wallets and digital payments, many other countries have been exploring CBDCs. It’s a way to bring financial services to people without bank accounts and reduce the dependency on cash, which is expensive to produce and distribute and has fallen from favor during the pandemic. CBDCs can modernize payments and bring instant settlement and other benefits and efficiencies, like programmable payments, to their economies.

"We are providing the central infrastructure, but everyone tied into that accelerates the opportunities."

A 2020 study by the Bank of International Settlements found that 40% of the central banks it surveyed had moved from the research stage to the concept and design stage. China, which has been developing a digital yuan since 2014, will be a bigger test, but The Bahamas was first out of the gate with a national rollout. 

The key for the Central Bank, Rolle said, was to ensure the Sand Dollar works in as many places as possible from the outset to make it a success — giving people access to digital dollars doesn’t work if there is no place to spend them. “We are providing the central infrastructure, but everyone tied into that accelerates the opportunities,” he said.

While some critics of CBDCs worry about potential disruption to the existing banking system, Rolle believes this is an opportunity for banks to rethink how they connect with their customers.  “I’m not going to take my life savings and put it in my mobile wallet,” he said. “I want the convenience of knowing that my savings are someplace that I can access them and view them. There is going to be a reliance on the confidence and comfort that banks provide.”

The rollout of the Sand Dollar has been slow by design, issuing a limited amount of money to citizens’ digital wallets through a small number of licensed firms so regulators and payment providers can better understand the logistics and respond to challenges.  

“We’re thinking about ways of making these new products interoperable with a range of services that people would ordinarily expect. We are hoping to see more examples of those types of partnerships,” Rolle said of the new Island Pay service.

While the pandemic has slowed the outreach to people and businesses, Rolle said he wants to redouble efforts before the start of the next hurricane season. There hasn’t been resistance to digital currencies, but more work needs to be done to help people and businesses understand the benefits of digital payments and assuage concerns about privacy and security, he said, “so they become empowered to use them.”

Vicki Hyman, manager, communications, Mastercard