The Central Bank of Jamaica recently announced that it will be launching its central digital currency (CBDC) called the Jamaican Digital Exchange or Jam-Dex in the first quarter of 2022. According to the Jamaican government, the national digital currency will help reduce the number of transaction costs, while the bank does not have access to financial services.
It is estimated that over 17% of Jamaicans do not have a bank, but many are wary of having a subsidiary. This is largely due to systemic barriers in the financial sector. A significant limitation is the particularly high transaction costs. So, many Jamaicans believe that banks are a reservation for the rich.
However, Jamaica’s internet penetration rate is over 55% and mobile phone usage is 100%. The Jamaican government is investing in this positive technological momentum to accelerate the introduction of its national digital currency.
Jamaica’s banking sector is now highly centralized. The two banks control more than 60% of the entire country’s banking sector. This situation has led to healthy competition and the formation of regressive oligopolistic problems such as high interest rates.
According to local MP Fitz Jackson, Jamaican banks have also increased transaction fees, which “punish depositors for keeping money in the bank.” The Jamaican government is trying to undermine these repressive trends in the financial services industry with the introduction of Jam-Dex digital currency. This will help bring the country’s financial system out of the control of monopoly banking giants.
Admission within the next two years
Over 70% of Jamaicans are expected to adopt the new digital currency within the next five years. The country’s central bank, the Bank of Jamaica, hopes to replace at least 5% of the Jamaican dollar in circulation each year over the next few years.
The foundation has praised Jam-Dex as a solution for greater transparency. All transactions made on the Jam-Dex network, including social payments, can be tracked for increased accountability.
The Central Bank of Jamaica recently issued a total of around J$6 million, or $44,000, to two major banks for real-life trials of the Jam-Dex network ahead of its official debut.
Customers wishing to use Jam-Dex will need to register a digital wallet and make a deposit through an approved financial institution in Jamaica.
Problems faced by non-bankers in Jamaica
By avoiding regulated financial institutions, many unbanked Jamaicans are missing out on progressive social and economic opportunities. Some government and non-profit aid programs, for example, use regulated financial institutions to distribute financial aid. Since non-bankers did not have bank accounts, many were excluded.
In an interview with Cointelegraph, Daniel Polotsky, founder of CoinFlip, America’s largest Bitcoin ATM network, said:
“Users who wish to open traditional bank accounts go through tedious approval procedures and typically face potential overdraft fees or other hidden costs that they often cannot afford.”
Another problem bankers face is dependence on exploitative sources of credit. Many of them are likely to receive payday loans because they do not have access to formal lending institutions. Payday loans are very expensive to finance.
1000 dollar Jamaican dollar banknote with former Prime Minister Michael Norman Manley. Source: Bank of Jamaica.
Many Jamaicans have become addicted to such services because loans are readily available, especially in emergencies. Ultimately, this leads to a vicious cycle of borrowing.
The lack of credit history of Jamaican bankers contributes to increased economic segregation. Employers, insurance companies, and landlords often ask for a credit report when considering assistance and compensation. Because people without bank accounts rarely have these records, they cannot get the help they need.
Many people who don’t have a bank also don’t have significant savings, or if they do, they keep their money in unsafe places, usually at home. This makes funds more vulnerable to risks such as theft.
The Jamaican CBDC aims to provide financial services to those without a bank, helping them overcome many of the challenges mentioned above.
More embedding with CBDC
The Jamaican digital currency will have a devastating impact on the Jamaican financial sector, especially non-bank residents.
The economic integration of unbanked Jamaicans requires the implementation of a radical financial system that promotes integration, and Jam-Dex has the qualities to make that happen.
Polotsky stressed the importance of such CBDCs:
“Central bank digital currencies like Jamaica are an important step in increasing knowledge about digital currencies.