Mon | Jun 5, 2023

Central bank targets large merchants for digital wallets

Published:Friday | October 15, 2021 | 12:09 AM
Governor of the Bank of Jamaica, Richard Byles.
Governor of the Bank of Jamaica, Richard Byles.
Bank of Jamaica headquarters building, Nethersole Place, Kingston.
Bank of Jamaica headquarters building, Nethersole Place, Kingston.

Jamaica’s central bank wants cash-intensive industries to set up digital wallets to pay pensioners, enable toll road payments, and facilitate remittance flows.

That would cover nearly one million people, cumulatively, based on the figures cited by Bank of Jamaica Governor Richard Byles during the Anti-Money Laundering/Counter Financing of Terrorism virtual conference on Wednesday, put on by the Jamaica Bankers Association and the Jamaica Institute of Financial Services.

The push to deepen the mobile money market forms part of the drive to introduce a central bank digital currency, a Jamaican CBDC, into the economy, and reduce cash usage. Byles appealed to banks and other deposit-taking institutions, referred to as DTIs, to encourage their merchant customers to set up CBDC wallets.

“I want to make a special appeal to the DTIs to be proactive in getting their merchant-customers to accept CBDC by themselves having a wallet with the DTIs. It is such a simple process,” he said. “All the merchant needs is a telephone,” he said.

For Byles, success means that both the government payment services and private-sector merchants set up wallets.

From the Government’s perspective, the transactional needs are massive, he said. The COVID Allocation of Resources for Employees or CARE programme, which is a cushion for households against the economic fallout from the pandemic, covers over 400,000 beneficiaries; the PATH programme provides support to over 300,000 persons; and pensions are provided for over 100,000 tied to the National Insurance Scheme, plus another 120,000 who are government pensioners, he said.

“To the extent that it can be done on CBDC, then it is an enormous efficiency move,” Byles said.

From the private-sector perspective, BOJ representatives are “working with the toll operators” to get them to allow customers to buy tolls via wallets, said the central bank governor, who noted that on a daily basis, some 62,000 vehicles traverse the East-West toll highway and 10,000 utilise the North-South toll road. In terms of remittance flows, he said that nearly 10 million money transfer transactions occur per year.

“Generally getting the public to accept CBDC is only one half of the equation. If you have CBDC in your wallet but you cannot spend it, because the merchants have not been recruited to accept it, then we have a problem. This is where the DTIs have a role to play in the success of CBDC,” Byles said.

The test phase of the Jamaica CBDC — to assess the smoothness of transactions and get a read on the potential market receptivity to a digital currency ­— is under way and should wrap up by year end, with a public roll-out scheduled soon after.

“We intend to roll it out nationally in the first quarter of 2022,” Byles said.

The IT infrastructure for BOJ’s digital currency is being provided by Irish company eCurrency Mint. In August, the central bank minted $230 million in CBDC for distribution by DTIs and service providers. The minting process took 20 minutes and essentially cost nothing, whereas an equivalent amount of physical cash would cost tens of millions to mint and an additional amount to ship, Byles told the conference. BOJ spends billions of dollars annually to have cash minted for Jamaica from overseas.

The CBDC forms part of the BOJ’s drive to get Jamaicans, especially those without traditional bank accounts, to own and start using digital wallets regularly. So far, around the world, only The Bahamas and the Organisation of Eastern Caribbean States, whose membership spans seven countries and two associates, are known to have issued central bank-backed digital currencies.

“We want financial inclusion with CBDC,” said Byles, who urged banking institutions to build their own wallets if external providers are charging too much.

The Bank of Jamaica’s IT department, he added, has developed a wallet for staff at the central bank.

“And it works fine,” he said.

Cash in circulation grows at roughly 10 per cent per annum, a pace faster than inflation, which concerns Byles. Part of the rise in circulation stems from demand, but also the replacement of old notes and others lost in circulation. The “mountain of cash” keeps rising, he said.

“It is of concern to me, because cash has certain inefficiencies in how you handle it, and in transactions. Also, there are costs involved that are unnecessary when you have another means of payment that’s digital,” he said.

The growth in cash means that Jamaicans generally find it convenient to hold physical cash, but the working class experience the bulk of its negatives.

“I cry every Friday evening for persons walking to the bus stop and are held up and robbed at worksites of one kind or another. It is the poor being robbed,” the BOJ governor said.

Merchants paying their workers digitally in wallets, he added, would reduce that threat.