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The cryptocurrency revolution is in full swing, and countries worldwide are racing against time and each other to implement it. While everyone had their sights on China and the United States, the Bahamas’ tiny nation island announced that they would launch its digital currency in October 2020.
The “Sand Dollar” of the Bahamas will most likely be the first central bank digital currency (CBDC) worldwide. Many years from now, when most of the planet’s nations will boast their well-established CBDCs, few will remember that the crypto revolution flicked its first spark in the Caribbean. Until then, we try to anticipate its release with everything we know so far.
Why do the Bahamas need a CBDC?
The Bahamas occupies the Lucayan Archipelago consisting of over 700 islands in the West Indies region of the Atlantic. More than 400,000 people live in the area, and the population is concentrated on more or less 30 islands.
While some big Bahamian islands like Andros Island and Great Inagua provide proper financial services, the smaller isles remain somewhat financially excluded. Traditional banking services like bank offices, ATMs, and card-issuing facilities are completely absent in many remote areas of the archipelago.
The Sand Dollar will be pegged to the Bahamian dollar, which is pegged to the US Dollar. It is subject to the same regulations as its pegged counterparts, and it will be available for mobile transactions.
Over 90% of Bahamians use a smartphone. The new CBDC will enable people to make payments, send and receive money anywhere in the archipelago without the need for cards, cash, or ATMs. Entire communities that have been left without any form of banking services when the commercial banks left their islands will once again enjoy the benefits of instant money payments and transfers.
The Sand Dollar Project
The Central Bank of the Bahamas has long been working on issuing its very own digital currency. For over two years, it has developed the “Sand Dollar Project” to give the Bahamians better access to financial services across the archipelago.
It all began in 2018 when the Central Bank raised the alarm about several commercial banks taking their business out of the archipelago. As a result of their departure, numerous Bahamians had to travel extensive lengths for minor banking operations, while the less fortunate ones found financial services entirely out of reach.
In 2019, The Central Bank of The Bahamas entered into an official agreement with NZIA Limited to design and implement a digital version of the Bahamian dollar.
The same year, the Bahamian Government followed up on the bank’s ambitious plan by launching Exuma and Abaco’s small islands as part of a pilot project.
Only 48,000 Sand Dollars were distributed to the two islands’ joint population, amounting to around 24,000 people at the time. The trial period was deemed as a success by the Central Bank. So, in September 2020, the institution decided to launch the CBDC across the archipelago.
The official launch of the Sand Dollar in all of the Bahamas should take place sometime in October 2020.
How will the Sand Dollar work?
The Sand Dollar is backed 1:1 to the Bahamian dollar (BSD), which, in turn, is pegged to the U.S. dollar.
To avoid inflation, the Central Bank of Bahamas will only mint new Sand Dollars upon increasing demand. At the same time, it will be removing physical BSD out of circulation.
The Sand Dollar will abide by all the Bahamas’ financial laws, including anti-money laundering and the Know Your Customer (KYC) regulations.
The Bahamian Central Bank believes that a widely-used CBDC will not only increase access to financial services, but it will also “place users at less risk of violent crimes that target holders of cash, and potentially reduce security and insurance costs associated with keeping cash on business premises.”
Is the Sand Dollar a One-Hit Wonder?
With the imminent launch of the world’s first CBDC, many wonder how long will it be until other countries follow into the Bahamas’ trailblazing steps.
The cryptocurrency community is well-aware of the plans that the United States and China have to release a central bank digital currency. However, these nations have to operate financial mechanisms much larger than those that the Bahamas has at disposal. If we also add the impact on the world’s financial status quo of a Chinese or an American CBDC, we can forgive their delays.
While the United States is struggling with the economic blow dealt by the COVID-19 pandemic, China has been working hard on releasing a digital form of its Yuan. The plan is to have it up-and-running before the Beijing Winter Olympics in 2022. So far, the country’s central bank has conducted internal testing of a digital wallet and even initiated several pilot programs in major cities.
As usual, the Chinese authorities leave very few details about their initiatives to reach the public eye. The digital Yuan launch looms somewhere over the horizon, but it is difficult to say when it will occur exactly.
A recent report from the Dutch fintech-focused non-profit think tank dGen reveals that most likely, by 2030, at least three countries will replace their fiat currencies with central bank digital currencies. If everything goes as planned with the Sand Dollar, the Bahamas will most likely be among them. The others will most probably vie for world supremacy and ultimate power in a new financial reality.