The social media video of Finance and Civil Service Minister Dr Nigel Clarke and his barber Paul which was filmed at Gordon House last Tuesday was political theatre. The objective: to give elected officials and citizens a concrete example of how CBDC or central bank digital currency works.
The WhatsApp video I saw on Wednesday reminded me Fortune writer Bernhard Warner’s fascinating article on a Kenyan market vendor, Susan Njeri, and an African fintech app I read the day before.
The CBDC, according to Bank of Jamaica Deputy Governor Natalie Haynes, will supplement banknotes and coins issued by the BOJ. “The CBDC and physical notes and coins will co-exist in the payment space. The CBDC will have the main aspects of money, as is currently the case with banknotes and coins, the only significant difference being that it is an alternative to cash at use primarily for transactions and will not attract interest when stored in an account. It will however, like cash, be a store of nominal value, a medium of exchange, a unique unit of account and a standard of payment,” the Deputy Governor said.
“As legal tender, CBDC can be individually exchanged for physical money. Households and businesses will be able to use the CBDC to make payments and store value at no cost. Unlike cash, however, consumers will be able to make payments with the CBDC anywhere, anytime, on any compatible device,” she said.
Paul and Susan are small business operators. They use their smartphones to perform financial transactions. In Paul’s case, his phone is programmed to accept CBDCs sent to him by his clients. The 2.41-minute video does not provide any information on what happens next to the digital funds Paul receives and whether he can use that currency to purchase goods and services.
CBDC CAN BE CONVERTED INTO CASH
Previous information released by the BOJ indicates that the answer is yes. CBDC JamDex can be used for payments and can be converted to cash.
the Fortune The article also provides an answer regarding M-Pesa, Kenya’s digital currency. M-Pesa, however, is not a CBDC, but a mobile money service provided by Safaricom.
Susan sells tomatoes, oranges, limes, pineapples, maize and root vegetables at an open-air market in Kenya’s capital. It has many local equivalents across the island and has been operating there for over 10 years. She says her business is doing well.
“Despite the uncertainty in the wider economy, she hired two additional women to keep the business running late at night, seven days a week. She attributes some of her success to intuitive payment software and she can install on her smartphone,” writes Warner. “The app, called M-Pesa for Business, tracks the money coming in and going out of her business in real time. she makes a profit for the day. This kind of data brings peace of mind in these uncertain economic times, she says. With just a few clicks, she can use the app to pay her company’s suppliers or transfer funds to her bank account, she can also use it to buy something from a nearby stall to take the family home.
Jamaica is a newborn in the digital currency sector. Kenya, on the other hand, is a teenager. Warner explained it this way: “M-Pesa just turned 15 this month, which makes it older than the iPhone and fintech giants like Ant Group of China, Venmo and Stripe. Its success is based on a simple proposition. Customers buy M-Pesa credits – or “airtime” – on their mobile phones which they can then use to make purchases at the millions of businesses across 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 government-issued monthly pension payment. Safaricom also recently launched a way for Kenyans to use M-Pesa to buy stocks and bonds on the Nairobi Stock Exchange, bringing in a new generation in retail investing. For merchants like Susan, the M-Pesa platform also continues to grow, with, for example, accounting and accounts payable services for merchants through the M-Pesa for Business app.
Jamaica is at the stage of sending and receiving digital currency payments using a smartphone. Kenyans and other African countries are one step ahead of us. It is estimated that more than half of Kenya’s gross domestic product is now processed on M-Pesa and there are 52 million users on the platform across Africa.
According to S&P Global, the financial technology or fintech sector “encompasses technology companies offering financial services, as well as entities providing technology services directly to financial institutions. Fintech companies use technology to support financial transactions between businesses and consumers. Advances in technology, 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 sector these last years.
Safaricom is Kenya’s mobile service provider.
What are the risks associated with using CBDCs? Do typical policies that provide coverage for lost or stolen money include digital currency? None of the local insurance industry sources had answers to these questions.
On Wednesday, according to a Reuters report, US 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.