Interview with the Central Bank of Jamaica and eCurrency on CBDCs

The Central Bank of Jamaica and eCurrency delve into the topic of CBDCs, based on the pilot that currently tests a digital Jamaican Dollar

Bank of Jamaica (BoJ): How far is the Central Bank of Jamaica in the CBDC journey? Could you please give us all the details about the digital Jamaican Dollar/Jamaica CBDCs?

In July 2020, Bank of Jamaica (‘the Bank’) launched its Central Bank Digital Currency (CBDC) initiative. The proposed CBDC will be a digital form of central bank-issued currency that will constitute legal tender (fiat currency). The expectation is that CBDC will achieve multiple objectives, including financial inclusion, improved cash management and reduced costs to the Bank and deposit-taking institutions, additional means of efficient and secured non-cash payment, additional means of storing value at no cost, and improved retail payment system.

Following a public tender process, the Bank received 43 submissions from entities across the globe and a provider (eCurrency Mint Incorporated) was identified and contracted in March 2021. The eCurrency Mint solution:

1. is a turnkey product that clearly establishes the currency management process from minting through to redemption and destruction;

2. supports distribution of the CBDC through financial intermediaries’ payment solution and facilitates immediate integration with existing payment systems;

3. facilitates delivery to end-user on mobile devices, cards; and

4. facilitates robust risk management tools.

The intention of the Bank is to begin pilot testing in the Bank’s Fintech Regulatory Sandbox in Q3 2021.

Currently Bank of Jamaica is at the planning phase of the CBDC pilot and have engaged with stakeholders to design the pilot in the FinTech Regulatory Sandbox (the Sandbox). The implementation phase of the pilot will commence June/July 2021 with virtual simulations. During this Sandbox period, the Bank will test all aspects of the eCurrency Mint solution. A managed pilot will be conducted from August to December 2021.

An island-wide competition has already been launched for the name, tagline, logo, and representative image of the CBDC.

Bank of Jamaica will be using a hybrid model for issuing CBDC, which will be solely for domestic use. BOJ will therefore not only issue to commercial banks, but also to other DTIs – building societies, merchant banks and authorised payment service providers (PSPs), all licensed or authorised by BOJ. These entities will distribute CBDCs to the retail market.

In order to use CBDC, consumers will need a CBDC wallet, which will be different from a regular bank account and much easier and simpler to obtain, with streamlined and simplified Know Your Customer (KYC) requirements. While persons who already have bank accounts will be able to automatically obtain a CBDC wallet, authorised Payment Service Providers, as well as DTIs will be able to on-board unbanked customers. Customers will be able to transfer and convert funds seamlessly between regular accounts and CBDC wallets.

In order to carry out CBDC transactions anywhere and at any time, consumers will be able to access, download and deploy a mobile wallet app on any smart phone, tablet or similar device using the networks of major telecom service providers. Customers will also be able to top-up their wallets with CBDC through all authorised agents or smart ABMs and do business using CBDC phone-to-phone with merchants.

Additional details on CBDC include:

1. CBDC will not be at a cost to consumers;

2. CBDC will be a full complement to banknotes and coins issued by BOJ and will co-exist in the payment space;

3. CBDC will have the major aspects of money, as now obtains with banknotes and coins, will be used primarily for transactions, and will not attract interest when stored in any CBDC wallet;

4. CBDC will, however, like cash, be a store of face value, a medium of exchange, a single unit of account, and a standard of payment;

5. As legal tender, CBDC can be exchanged on a one-to-one basis with physical cash;

6. Simplified KYC requirements applicable to the establishment of CBDC wallets will make it much easier and simpler for customers to establish and hold CBDC wallets with financial intermediaries, thereby becoming formal participants in the financial system;

7. Households and businesses will be able to use CBDC to make payments and store value;

8. Consumers will be able to make online and offline payments with CBDC anywhere, anytime, on any compatible device, unlike cash.

During the initial phase of testing in the Sandbox over the period June – August 2021, the CBDC solution will be implemented and integrated with existing systems of financial institutions. In addition, commencing August the Bank will move to the phase of issuing CBDC in a managed pilot within the Sandbox. The pilot is scheduled to end December 2021, with national roll-out in the first quarter of 2022.

(BoJ): What payments challenges does the digital Jamaican Dollar aim to solve? What are the benefits CBDCs would bring to the local people and businesses?

It is expected that challenges will exist with any technology and CBDC is no different. The Bank has identified risks applicable to CBDC such as AML/CFT, data privacy, and protection and cyber security.

1. AML/CFT: Financial intermediaries (DTIs and PSPs) through which CBDC will be distributed to retail clients are all designated under the Proceeds of Crime Act (POCA) with BOJ being the Competent Authority. In this regard, these FIs are required by BOJ, and already have in place, an AML/CFT Risk Based Supervisory framework. This framework will also apply to CBDC distribution. Unlike physical banknotes and coins, there is no anonymity with CBDC as it relates to the FIs. The design of the CBDC allows for tracking of all payments by the FIs and by the relevant authorities, under POCA, when required.

2. Data privacy and protection: Bank of Jamaica’s CBDC’s solution will support the protection of personal identity through built-in solutions such as encryption techniques, digital signatures, and multi-factor authentication mechanisms. The solution decouples CBDC and the identify of customers to ensure data privacy. In addition, customers’ personal data for AML/CFT purposes will be held by their selected financial intermediaries which in turn are subject to the Data Protection Act promulgated July 2020.

3. Cyber security: The Bank’s current cybersecurity framework is robust with multi-tiered and in-depth defence strategies, including independent vulnerability assessment and testing. These defence strategies undergo continuous improvements. Notably, to further minimise the Bank’s risk exposure, additional internal and external monitoring tools are being introduced in 2021. The CBDC solution has high levels of administrative, physical, and logical controls, allows for role-based user management in the minting and issuing processes by BOJ.

Depending on the specifics of our situations, some other countries and territories may anticipate slightly different benefits from using CBDC, but several benefits are universal, and apply to us.

Individual consumers and businesses will benefit from:

• The sheer convenience, from a broadened and more modern payment system, of a digital alternative to cash that is seamless, secure, and simple to use;

• Greater financial inclusion, as persons who do not currently have regular bank accounts will be able to access CBDC wallets in a way that will be easier and simpler than accessing regular bank accounts.

The financial system will benefit from:

• Increases in systemic efficiency and significant reductions in costs for cash distribution and storage;

• An increase in the menu items of services available to customers and an opportunity to innovate unique products and systems complementary to CBDC use.

Bank of Jamaica will benefit from:

• Increased efficiency by removing the time and effort it takes to forecast currency needs and order new currency in advance;

• Significant long-term cost savings. There will be no ‘wear and tear’ on digital currency, and it cannot get ‘lost in circulation,’ so there will never be a need for replacement. In addition, there will be no cost in increasing supply to the system if demand increases over time.

• The modernisation and expansion of BOJ’s currency minting and issuance processes;

• Further expansion and modernisation of the national retail payments infrastructure in keeping with the desired increased digitalisation of the economy;

• Supporting the digital economy (in particular as it relates to allowing efficient distribution of Government payments to beneficiaries).

eCurrency (e): Congrats for being selected to take part in Bank of Jamaica’s CBDCs pilot. What are the technologies, ideas, and strengths that eCurrency will bring to this trial?

It is a privilege to be working with Bank of Jamaica in its digitalisation initiative and to enable the issuance and distribution of CBDC in a public-private partnership in Jamaica. The eCurrency solution allows the central bank to issue legal tender as a bearer instrument in a digital form. This digital form of the Jamaica Dollar (JMD) will be a complement to Jamaican banknotes and coins.

eCurrency’s CBDC solution leverages existing financial, market, RTGS and telecommunications infrastructures - which means that all the market participants including commercial banks and other deposit-taking institutions, payment service providers and companies are onboarded to the CBDC platform using their existing systems and infrastructure. This makes CBDC easy and simple to obtain. Consumers and business users can make and receive payments any time anywhere using any convenient device. Funds can be converted seamlessly between bank deposits and CBDC. It is energy and cost-efficient to deploy and operate for BOJ, market participants and users.

eCurrency’s digital bearer instrument technology ensures the highest security against cyber-attacks, counterfeiting and delivers high performance for large volume retail usage. Bank of Jamaica’s goal of financial inclusion can be achieved through the introduction of CBDC.

(e): It is almost one month since the CBDCs pilot started. What have you observed so far?

This pilot is unique in a number of ways among the CBDC projects in other places.

Bank of Jamaica has been extremely well organised and pragmatic in their approach in the adoption of CBDC. The first phase of the project was to engage with all stakeholders and to communicate the objectives of the project, making sure that all stakeholders in the financial ecosystem understand how they can participate. Other stakeholders such as government entities including the Ministry of Finance and the Public Service have also been fully briefed on how they can take advantage of the introduction of a digital Jamaica Dollar.

There is great enthusiasm within the financial, telecommunications and other sectors in Jamaica to participate in the digital transformation that CBDC will bring. CBDC will enable efficiency gains, convenience and new digital businesses benefiting the general public, especially those who are under-banked and un-banked.

The comprehensive stakeholder engagement helps to ensure that the project can quickly move on to focusing on the use cases, ecosystem, operational processes, and communication programmes.

(e): When speaking about CBDCs many address the anonymity advantage/disadvantage. How to comment on this, and how can technology enable pseudo-anonymity/anonymity similar to cash?

Jamaica CBDC is a digital bearer instrument, like banknotes, which stores and validates the monetary value without the identity of an individual. Preserving privacy is very important to both the Bank and eCurrency. The technology is designed in such a way that the central bank does not collect private information of the individuals. Transactions take place without the central bank knowing the identities of the transaction participants. Financial intermediaries, however, will know the identities of participants as part of the AML/KYC compliance.

Moreover, Bank of Jamaica can monitor CBDC circulation without collecting or maintaining user identity and private information. As such the unique benefit of the eCurrency CBDC solution is that it allows for privacy to be protected while ensuring financial integrity and data availability for improved monetary policy formulation and implementation.

(BoJ): What role will Facebook Diem play when a digital Jamaican Dollar will be rolled out? Have you considered the impact stablecoins, crypto, Diem will have on a local CBDC?

At this point, we do not foresee a noticeable impact of stablecoins or cryptocurrencies on CBDC. The Bank will continue to carry out research in fintech to ascertain the impact these cryptocurrencies will have on the country’s monetary affairs. This is due to the fact that they are not legal tender and there is no evidence of widespread use of stablecoins and cryptocurrencies within our country, especially as payment instruments locally.

Any new financial instruments including stablecoins and cryptocurrencies will require careful regulatory scrutiny and appropriate regulatory controls to maintain stability.

(BoJ) and (e): When will CBDCs enter mainstream? Where will we be in 5 years’ time?

The Bank envisions CBDCs entering mainstream by the end of ten years from roll-out if not before, as it proves its utility to the average citizen and business operator. In 5 years, the Bank foresees a robust digital financial system underpinned by the safe and secure digital Jamaica Dollar that will be more widely acceptable for use by all Jamaicans.

About Natalie Haynes

Mrs. Natalie Haynes currently serves as Deputy Governor at the Bank of Jamaica with responsibility for the Banking & Currency Operations and Financial Markets Infrastructure Divisions. With over 30 years’ experience in central banking, she currently sits as Chairman of the Bank’s Oversight Committee for the implementation of a Central Bank Digital Currency (CBDC).

About Miles Au Yeung

Miles leads the overall market operations of eCurrency. He works with central banks to evaluate the applicability of CBDC, to develop the implementation roadmap and processes, and to design the management models for digital currency. Miles has been advising corporate clients in financial services, technology and telecommunication industry on digital transformation and business strategy prior to joining eCurrency.

About eCurrency

eCurrency Mint pioneered the technology to enable central banks to securely issue, distribute and supervise Central Bank Digital Currency (CBDC), the digital fiat currency that operates alongside notes and coins as digital legal tender.  The company combines hardware, software, and cryptographic security protocols to provide central banks the tools they need to preserve their charter as the sole issuer of sovereign currency in an increasingly digital economy. eCurrency supports the huge economic opportunities presented by the global shift to digital payments, including efficiency gains, financial inclusion, sustainability and economic growth. For more information visit: www.ecurrency.net.