The Bahamas’ “sand dollar” just became the world’s first digital national currency
By Caitlin Finlay
The Bahamas in October became the first nation to introduce a digital version of its national currency with the release of the Bahamian “sand dollar.” The digital Bahamian dollars will be kept in digital wallets on mobile phones and will be secured with multi-factor authentication. Given the geography of the Bahamas—it’s an archipelago with many islands—distributing traditional currency is challenging. Digital currency aims to reduce this challenge by providing financial access through digital and accessible means.
Until recently, one heard of digital money only in connection with cryptocurrencies such as Bitcoin and the development of private payment services that use cryptocurrencies, but now governments around the world are feeling the pressure to develop government-regulated digital currencies.
Cryptocurrencies are non-government-regulated digital forms of currency typically made up of coins or tokens. These digital coins or tokens are owned by individuals, ownership records are stored in online ledgers, and the currencies can be transferred from one owner to another.
A new type of currency called central bank digital currency (CBDC) is in concept or testing phases in many countries around the world including the United States, Barbados, Uruguay, Sweden, and Europe. China is in the testing phase of introducing digital currency and is suspected to launch a digital yuan fairly soon. These new currencies would not replace the present currencies but would be introduced as an additional form of currency in a digital instead of physical format.
Bank of Canada (BoC) Governor Tiff Macklem recently announced that the BoC is working with the other G7 member states to discuss the creation of CBDCs and stated: “International cooperation is essential to improve the quality of CBDCs and to ensure that they also support efficient and low-cost cross-border payments. We still have a lot of work to do before deciding to issue a CBDC in Canada. As we investigate this, we welcome engagement from the private sector and civil society since our CBDC would have to meet the needs of all Canadians.”
Also in October, the G7 member states (Canada, France, Italy, the United Kingdom, the United States, Germany, and Japan) and the Bank for International Settlements published a report discussing the principles required for creating publicly available CBDCs. “This report is a real step forward for this group of central banks in agreeing the common principles and identifying the key features we believe would be needed for a workable CBDC system,” said working group co-chair Sir Jon Cunliffe, deputy governor of the Bank of England and chair of the Committee on Payments and Market Infrastructures. “As well as helping central banks to meet their public policy objectives, the report provides a useful framework for how central banks provide money and support payment systems in an ever-evolving digital world. This group of central banks has built a strong international consensus which will help light the way as we each explore the case and design for CBDCs in our own jurisdictions.”
It seems a matter of when, not if, Canada and other nations will develop a CBDC. The question, of course, is what to call it? Any ideas?