In the previous installment of FT(AV) Jamaicawatch, we witnessed Jamaica’s remarkable recovery from a detrimental situation. However, it may come as a surprise that Jamaica is now leading the way in international financial innovation. Introducing Jam-Dex, also known as “ackee money.” Jam-Dex was officially launched in July 2022 and is one of only four fully established retail Central Bank Digital Currencies (CBDCs) in the world. It stands alongside the Bahamian sand dollar, the Eastern Caribbean DCash, and Nigeria’s eNaira.
Despite its recent economic success, Jamaica still faces challenges such as stagnant public sector wages, rising costs, and unstable social services. Thus, the development of digital cash may not appear to be a top priority for the country. However, as the saying goes, “if you build it, they will come.” As of February 2023, Jam-Dex had a total of 190,000 customers, with transactions valued at $357 million in 2022. Although these numbers are relatively small compared to Jamaica’s overall electronic retail transactions and currency in circulation, there are reasons behind the slow adoption. Issues such as a lack of merchant sign-ups and technical difficulties in the initial stages hindered the widespread use of Jam-Dex. The government attempted to incentivize the first 100,000 customers with a bonus, but only 36,000 individuals took advantage of the offer.
To encourage further adoption, the finance ministry introduced two additional incentive programs. The “Small/Micro Merchant Incentive Program” rewards 10,000 food stores, gas stations, and salons with a deposit, while the “Wallet-holder Individual Loyalty Program” gives regular users loyalty points that can be redeemed for cashback.
The International Monetary Fund (IMF), a familiar partner to Jamaica, remains cautious about CBDCs. They acknowledge the potential benefits for financial inclusion but emphasize the need to manage possible risks. Despite the challenges faced by early adopters like Jamaica, CBDCs continue to gain momentum. The Bank for International Settlements conducted a survey revealing that 93% of surveyed central banks have engaged with digital currencies to some extent. It is projected that by the end of the decade, there could be a total of 24 CBDCs in circulation.
Even in countries with traditionally strong cash economies, like Japan, CBDCs are gaining traction. The decline in the national stock of coins and the pilot CBDC program launched by the Reserve Bank of India further indicate the global trend towards digital currencies. However, the United States has shown resistance to CBDCs, with the Federal Reserve having to deny rumors about their new payment system being a CBDC. The introduction of “Britcoin” in the UK sparked significant public interest and conveyed the potential impact of CBDCs.
Jamaica, being a smaller economy, has different motives for issuing a CBDC compared to larger economies. The BIS survey highlighted that CBDCs in emerging and developing economies are primarily driven by financial inclusion goals. In comparison, advanced economies focus more on other factors. Jam-Dex’s journey can provide valuable lessons for central banks with similar goals.
So, why did Jamaica proceed with its CBDC? The answer is simple: financial inclusion and graphic design. The Bank of Jamaica recognized the high level of financial exclusion in the country and saw CBDCs as an opportunity to address this issue. The Caribbean Policy Research Institute (Capri) reported that 17% of Jamaicans lack bank accounts, and a significant portion of employed individuals receive cash or cheque payments. Additionally, only 13% of Jamaicans borrowed from formal financial institutions in the six months leading up to February 2022. Although the unbanked level may not be exceptionally high, the level of account inactivity is concerning. Many people choose to withdraw their salaries in cash instead of utilizing their bank accounts due to charges associated with card-based transactions.
The high costs in the banking sector can be attributed to the market dominance of two major banks in Jamaica. These banks have significant control over the market, which hinders competition among financial institutions. Additionally, strict Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements pose barriers for many Jamaicans who cannot provide the necessary identification and documentation.
Furthermore, historical factors and a lack of trust in the government and financial institutions contribute to the low adoption of traditional banking services. Jam-Dex addresses some of these issues by offering streamlined and simplified KYC requirements, making it easier for unbanked individuals to participate. However, widespread adoption requires not only attractive incentives but also investment in education and technology to ensure its mainstream usage.
While the current numbers for Jam-Dex may seem small, they represent a step towards greater financial inclusion in Jamaica. The journey towards CBDC adoption is a complex one, but with continued efforts, Jam-Dex and other CBDCs have the potential to transform the financial landscape.
Denial of responsibility! VigourTimes is an automatic aggregator of Global media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, and all materials to their authors. For any complaint, please reach us at – [email protected]. We will take necessary action within 24 hours.
