The Central Bank of Jamaica recently announced that it would launch its central bank digital currency (CBDC), called the Jamaica Digital Exchange, or Jam-Dex, in the first quarter of 2022. According to the Jamaican government, the national digital currency will help reduce transaction costs while allowing the unbanked to access financial services.
Is estimated that more than 17% of Jamaicans are unbanked, but it is feared that many more are unbanked. This is largely due to systemic impediments in the financial sector. High transaction costs, in particular, are a major limitation. Consequently, many Jamaicans believe that banks are the exclusive preserve of the wealthy.
That said, Internet penetration in Jamaica brags impressive at more than 55%, while mobile phone usage is 100%. The Jamaican government is banking on this positive technological dynamic to catalyze the adoption of its national digital currency.
As it is, Jamaica's banking sector is highly centralized. two banks to dominate more than 60% of the entire banking sector in the country. The situation has brought about healthy competition and led to the compounding of regressive oligopoly problems, such as high interest rates.
Jamaican banks have also uploaded a lot transaction fees that "penalize depositors for having money in the bank," according to local MP Fitz Jackson. The Jamaican government seeks to subvert these repressive trends in financial services by introducing the Jam-Dex digital currency. It will help devolve the country's financial system out of the control of monopoly banking giants.
Adoption in the next two years
It is expected that more than 70% of the Jamaican population adopt the new digital currency within the next five years. The country's central bank, the Bank of Jamaica, expects replace at least 5% of Jamaican dollars in circulation each year for the next two years.
The establishment has hailed Jam-Dex as a solution for greater transparency. All transactions made on the Jam-Dex network, including government welfare payments, will be traceable to improve accountability.
The Central Bank of Jamaica recently issued a total of around six million Jamaican dollars, or $44,000, to two major banks to carry out actual testing of the Jam-Dex network before its official debut.
Customers wishing to use Jam-Dex will need to register for a digital wallet and make a deposit through an accredited Jamaican financial institution.
Problems Facing the Unbanked in Jamaica
By avoiding regulated financial institutions, many unbanked Jamaicans miss out on progressive socioeconomic opportunities. Some government and nonprofit assistance programs, for example, make use of regulated financial institutions to distribute monetary aid. Because the unbanked lack bank accounts, many of them are left out.
Speaking to Cointelegraph, Daniel Polotsky, the founder of CoinFlip, the largest Bitcoin (BTC) ATM network in America, said:
“Users looking to open traditional bank accounts go through tedious approval processes and often expose themselves to potential overdraft fees or other hidden fees that they often can't afford.”
Another problem facing the unbanked is dependence on exploitative credit sources. Many of them are likely to take out payday loans due to lack of access to formal lending institutions. Payday loans are incredibly expensive to finance.
Many Jamaicans are hooked on such services because the loans are easily accessible, especially during emergencies. Ultimately, this leads to a vicious cycle of indebtedness.
The lack of credit history among the unbanked in Jamaica further contributes to their economic segregation. Employers, insurance companies, and homeowners often need your credit history when considering assistance and compensation. Because the unbanked rarely have these records, they can't get the help they need.
Many unbanked people also lack substantial savings, and when they do, they keep the funds in insecure places, often at home. This makes the money more susceptible to risks such as theft.
Jamaica's CBDC aims to provide financial services to the unbanked, helping them overcome many of the aforementioned problems.
Greater inclusion with a CBDC
Jamaica's digital currency is set to have a disruptive effect on Jamaica's financial sector, particularly its unbanked citizens.
The financial inclusion of unbanked Jamaicans requires the implementation of a radical financial system that promotes inclusion, and Jam-Dex has the necessary properties to achieve it.
Polotsky highlighted the importance of such CBDCs:
“Central Bank digital currencies like Jamaica's are an important step in building widespread familiarity with digital currencies. They also allow unbanked and unbanked people the opportunity to hold and send money digitally for a lower fee than traditional banks, which can be crucial. While they will not replace cryptocurrencies, these currencies can seamlessly co-exist in our digital world."
He also explained that Jamaica's new digital currency would help popularize the use of major deflationary cryptocurrencies like Bitcoin, which are generally used to hedge against inflation.
The use of digital currency would allow relevant government agencies to monitor purchases of subsidized goods and detect price anomalies.
Consumer price fixing and combating price gouging
The launch of Jamaica's digital currency will allow the government to counter price cartels, especially in cases where price regulation is necessary. Such scenarios often occur when government subsidies cover certain products.
In recent years, Jamaican lawmakers have had to move quickly to enact laws to prevent price cartels, especially in times of calamity. Price gouging in the nation is particularly rampant during hurricane season when opportunistic traders jack up the prices of building materials such as lumber, tarps and zinc sheets.
During the onset of the COVID-19 pandemic, Jamaican price gouging cartels forced the intervention of disinfectants, hand sanitizers and face masks. Fines of up to 2 million Jamaican dollars were levied, or $13,066 at the time of writing this report. tax at retailers found to be manipulating prices.
Of course, verifying every reported case of price gouging is a time-consuming process. Jamaica's digital currency will make it easier for authorities to verify such reports by analyzing point-of-sale records on the blockchain.
Fight against money laundering
Jamaica had a Basel AML Index score of 5.77 in 2021. The nation's index has been on a downward trend since 2017. The current rating means that Jamaica is highly prone to money laundering and terrorist financing schemes. The composite index score considers numerous factors, including the nation's levels of corruption, its financial standards, adherence to the rule of law, and political disclosure.
In 2020, Jamaica was added to the blacklist of European Union countries after the EU discovered that Jamacia's anti-money laundering (AML) protocols were missing.
The country was also placed on the Financial Action Task Force gray list, a move that resulted in Jamaican merchants and customers being unable to transact on major international retail platforms.
The introduction of Jamaica's digital currency is expected to improve transaction transparency and help the nation overcome its current AML problems.
More effective monetary policies
The launch of Jamaica's digital currency will allow the country's central bank to track transactions with the aim of improving monetary policies.
The central bank, for example, could set general credit scores against debt when formulating relevant regulatory standards.
CBDC surveillance will also help authorities crack down on companies involved in tax avoidance schemes. This is thanks to Jam-Dex transaction traceability.
Jamaica's digital currency will bring many benefits to the Caribbean island nation. Still, its adoption is likely to take a long time due to resistance from politicians and a population that fears government surveillance.
A section of politicians has already accused the Jamaican government of bribery after it recently announced an incentive of 2,500 Jamaican dollars to the first 100,000 users of Jam-Dex.
Full adoption of the Jam-Dex digital currency is expected to take several years due to teething problems.
Post navigation
