Post by boj on Apr 2, 2022 3:25:42 GMT
The video on social media about Finance and Public Service Minister Dr Nigel Clarke and his barber Paul that was filmed at Gordon House last Tuesday was political theatre. The aim: to provide elected representatives and members of the public with a practical example of how the CBDC or central bank digital currency works.
The WhatsApp video I saw on Wednesday reminded me of Fortune writer Bernhard Warner’s fascinating article about a Kenyan market vendor, Susan Njeri, and an African fintech app that I read the day before.
The CBDC, according to Bank of Jamaica Deputy Governor Natalie Haynes, will complement banknotes and coins issued by the BOJ. “Both CBDC and physical notes and coins will co-exist in the payment space. CBDC will have the major aspects of money, as now obtains with banknotes and coins, with the only significant difference being that it is an alternative to cash to be used primarily for transactions and will not attract interest when stored in any account. It will, however, like cash, be a store of face value, a medium of exchange, a single unit of account, and a standard of payment,” said the deputy governor.
“As legal tender, CBDC can be exchanged on a one-to-one basis with physical cash. Households and businesses will be able to use CBDC to make payments and store value at no cost. Unlike cash, however, consumers will be able to make payments with CBDC anywhere, any time, on any compatible device,” she said.
Paul and Susan are small business operators. They use their smartphones to conduct financial transactions. In the case of Paul, his phone is programmed to accept CBDC sent to him by his customers. The 2.41-minute video does not provide any information about what happens afterwards to the digital funds that Paul receives and if he can use that currency to buy goods and services.
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CBDC CAN BE CONVERTED TO CASH
Previous information published by the BOJ indicates that the answer is yes. The JamDex CBDC can be used for payments, and it can be converted to cash.
The Fortune article also provides an answer regarding M-Pesa, Kenya’s digital money. The M-Pesa, however, is not a CBDC, but a mobile money service provided by Safaricom.
Susan sells tomatoes, oranges, limes, pineapples, corn, and root vegetables in an open-air market in Kenya’s capital. She has many local equivalents across the island and has been operating at that location for over 10 years. She states that her business has been faring well.
“Despite the uncertainty in the wider economy, she’s hired an additional two women to keep the business operating through the late-evening hours, seven days a week. She credits part of her success to an intuitive piece of payments-and-accounting software that she can pull up on her smartphone,” Warner writes. “The app, called M-Pesa for Business, tracks in real-time the money flowing in and out of her business. She knows, for example, the moment she turns a profit for the day. That kind of data brings peace of mind in uncertain economic times, she says. With a few taps, she can use the application to pay off her business suppliers or transfer funds to her bank account. She can also use it to purchase something at a nearby stand to bring home to the family.”
DIGITAL CURRENCY
Jamaica is a new-born baby in the business of digital currency. Kenya, on the other hand, is a teenager. Warner explained it this way: “M-Pesa just turned 15 years old this month, which makes it older than the iPhone and such fintech giants as Ant Group of China, Venmo, and Stripe. Its success is built on a simple proposition. Customers buy M-Pesa credit – or ‘airtime – on their mobile phones that they can then use to make purchases at the millions of businesses around Africa that accept the cashless payment system. Or you can use M-Pesa to pay bills or settle a debt with a friend or family member. You just need the other party’s phone number. Unlike, say, Venmo, Kenyans can use M-Pesa to receive their monthly government-issued pension payment. Safaricom also recently launched a way for Kenyans to use M-Pesa to buy stocks and bonds on the Nairobi Securities Exchange, bringing a new generation into retail investing. For merchants like Susan, the M-Pesa platform continues to expand, too, with, for example, bookkeeping and accounts-payable services for merchants via the M-Pesa for Business app.”
Jamaica is at the stage of sending and receiving payments in digital currency by way of a smartphone. The Kenyans and other African countries are way ahead of us. It is estimated that more than half of Kenya’s gross domestic product is now processed on M-Pesa and that there are 52 million users on the platform throughout Africa.
The financial technology or fintech industry, according to S&P Global, “encompasses technology-enabled firms offering financial services, as well as entities providing technology services directly to financial institutions. Fintech companies employ technology to support financial transactions among businesses and consumers. Technological advances, changing demand for financial products and competition in financial services are all driving a new wave of fintech start-ups and investments that have drawn attention to the industry in recent years.”
Safaricom is Kenya’s mobile service provider.
What are the risks associated with the use of CBDCs? Do the typical policies that provide coverage for the loss of or theft of money include digital currency? None of the sources in the local insurance industry had answers to these questions.
On Wednesday, according to a Reuters report, United States President Joe Biden signed an executive order requiring the government to assess the risks and benefits of creating a central bank digital dollar, as well as other cryptocurrency issues, the White House said.