Jamaica’s central bank digital currency and the problems it hopes to solve

The Central Bank of Jamacia recently announced that it would be launching its central bank digital currency (CBDC), dubbed the Jamaican Digital Exchange, or Jam-Dex, in the first quarter of 2022. According to the Jamaican government, the national digital currency will help to lower transaction costs while allowing the unbanked to access financial services.

It is estimated that over 17% of Jamaicans are unbanked, but it is feared that many more are underbanked. This is largely due to systemic financial sector impediments. High transaction costs, in particular, are a huge limitation. Consequently, many Jamaicans believe that banks are a preserve of the rich.

That said, internet penetration in Jamaica boasts impressively at over 55%, while mobile phone usage is at 100%. The Jamaican government is banking on these positive technological dynamics to catalyze the adoption of its national digital currency.

As things stand, the Jamaican banking sector is highly centralized. Two banks dominate over 60% of the nation’s entire banking sector. The situation has brought healthy competition and led to the compounding of retrogressive oligopoly issues such as high interest rates.

Jamaican banks have also hiked up transaction fees which “penalise depositors for having monies in the bank,” according to local Member of Parliament Fitz Jackson. The Jamaican government seeks to subvert these suppressive financial service trends by introducing the Jam-Dex digital currency. It will help devolve the country’s financial system away from the control of monopolistic banking giants.

Uptake in the next couple of years

Over 70% of the Jamaican population is expected to take up the new digital currency within the next five years. The country’s central bank, the Bank of Jamaica, is hoping to replace at least 5% of Jamaican dollars in circulation each year for the next couple of years.

The establishment has hailed Jam-Dex as a solution to greater transparency. All transactions done on the Jam-Dex network including government welfare payments will be traceable to enhance accountability.

The Jamaican central bank recently issued a total of around six million Jamaican dollars, or $44,000, to two major banks to carry out real-world testing of the Jam-Dex network before its official debut.

Customers looking to use Jam-Dex will be required to sign up for a digital wallet and make a deposit via an accredited Jamaican financial institution.

Problems facing the unbanked in Jamaica

Due to their avoidance of regulated financial institutions, many unbanked Jamaicans miss out on progressive socio-economic 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 undergo tedious approval processes and usually expose themselves to potential overdraft fees or other hidden expenses that they often cannot afford to pay.” 

Another problem that the unbanked face is the reliance on exploitative credit sources. Many of them are likely to take out payday loans due to a lack of access to formal credit institutions. Payday loans are incredibly expensive to finance. 

Many Jamaicans are hooked on such services because the loans are easy to access, especially during emergencies. This ultimately leads to a vicious borrowing cycle.

The lack of a credit history among the unbanked in Jamaica further contributes to their economic segregation. Credit history is typically needed by employers, insurance companies and landlords when making assistance and compensation considerations. Because unbanked individuals rarely have these records, they cannot…