Central Bank Of The Bahamas Launches The Sand Dollar

Expert insights on the launch of the Sand Dollar, the national digital currency developed by The Central Bank of the Bahamas. The first Central Bank Digital Currency (CBDC) in the world to be fully deployed, the Sand Dollar is a digital version of the Bahamian dollar.

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Q3 2020 hedge fund letters, conferences and more

A First Productive CBDC At Central Bank Of the Bahamas

Johannes Kaske, Sales Director Germany at METACO

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It is great to see a first productive CBDC in the Bahamas. This is an important step towards accelerated digital transformation and CBDC adoption. It is also interesting to see that it is mainly intended to provide financial access to the Bahama’s increasingly unbanked population due to the banking sector downsizing physical branches.

In this vein, it appears to have a slightly different purpose as compared to CBDC initiatives from major economic areas like China, Europe or the United States. In those areas, I see the potential of innovating financial markets with automated payments, more efficient payment infrastructures or new types of assets to be a more important driver of efforts.

However, as the Sand Dollar is backed by the Central Bank of the Bahamas and tied to the BSD--and thus the USD--it might fuel new tokenization projects, as the Sand Dollar would be a regulated alternative to non-governmental third party stablecoins. Still, large scale institutional adoption of tokenization will likely require a digital version of a major global currency.

In my opinion, central banks across the globe are likely to intensify their CBDC efforts and will monitor the developments and adoption of the Sand Dollar and further CBDCs very closely.”

Central Bank Of the Bahamas Pegs To Their Dollar

Konstantin Richter, CEO and Founder of Blockdaemon 

As one of the first CBDC’s to be officially launched, the Bahama's release of the Sand Dollar is leading the way in CBDC development. However it has been, until recently, overshadowed by progress in other CBDCs and larger economies, with China and Europe recently announcing developments with the digital Yuan and digital Euro. The project started in 2018 and seems to be largely aligned with the needs of the Bahamian population in enabling mobile transfers of Sand Dollars, and implementing security practices that align with mobile transactions. The buy-in that the Central Bank of the Bahamas has achieved from private sector players will be sure to garner significant levels of adoption and support. 

One of the markers of success of the Sand Dollar, laid out by the Central Bank will be whether it can fully serve communities who do not currently have access to digital payments or banking infrastructure. As with any CBDC, success comes from adoption and it will be interesting to see how quickly levels of adoption will grow among citizens. 

At their heart, the drivers for using a digital currency lie within the realms of convenience and risk. The Sand Dollar is pegged to the Bahamian dollar which is in turn pegged to the USD, this opens up opportunities for exchanging both BSD and USD for the Sand Dollar which could potentially tap into the US market. Overall, the launch of the Sand Dollar solidifies the advances that have been made thus far in digital currencies and pioneers concepts in furthering transactional efficiency and accessibility.”

The Development And Implementation Of CBDCs

Antony Welfare, Chief Commercial Officer, NEM Software

“As society moves increasingly away from cash, the development and implementation of CBDCs continues to pick up pace. It makes sense that in a monetary system which is becoming increasingly digital, financial authorities would enact digital versions of their own currency. 

The launch of the Bahamian Digital Currency, the Sand Dollar, is an important step towards the transformation of our global financial system to one fit for purpose in 2020. It is promising to see more central banks making strides forward in this space, and to see the Bahama Central Bank taking this groundbreaking step towards introducing a CBDC alongside other jurisdictions, such as Lithuania, Estonia and China. 

It will be interesting to see how the Sand Dollar will compare against the emergence of future private stablecoin projects, such as that of Libra, and whether there will be space on the market for both forms of digital currency to exist in parallel among retail users.”

A Uniting Force

Luciano Nonnis, Founder, DXone

In a way, it is fitting that an archipelago-nation with hundreds of islands would roll out a CDBC, for such a digital currency can really be a uniting force and more efficient for the regulator and central bank. 

I expect nations such as the U.S., China, Russia, and those of the European Union to keep a close eye on the development out of the Bahamas. The Sand Dollar initiative was first trialed on the smaller islands of Exuma and Abaco in December 2019, so you see it took about 10 months to roll out the digital currency once pilots were underway. 

The country chose Exuma because it is composed of Great Exuma and its surrounding cays. The central bank believed it best represented the geography of the greater Bahamas. In this respect, Bahamas serves as a great pilot for global central bank digital currencies, as the nation in some ways might be seen as a microcosm of the world’s many nations and continents,

As with all central bank digital currencies, it is important to note this is not a cryptocurrency built on a blockchain in the way that Satoshi Nakamoto, the founder of Bitcoin, envisaged the technology. 

While cryptocurrencies are deployed over decentralised networks, the central bank digital currencies of all nations are centralised. So anyone who tells you this is a win for decentralised cryptocurrency doesn’t know what they are talking about. Bitcoin is decentralised and stateless. CBDCs are centralised and issued by governments.

In its FAQ on its website, the Bahamas make this clear: the central bank digital currency is not like Bitcoin. It is issued by a central party; i.e. the Central Bank of The Bahamas and is backed by Bahamian fiat. In a way, the CBDC is more akin to a public sector version of a centralised stablecoin a la Tether. 

The payment system has been designed to be more secure than existing payments mechanisms, according to the nation, but one must ask: is physical cash really a broken medium? Man has used physical forms of currency––from gold and silver to fiat paper––for millenia. What’s so insecure about that? I suppose from a regulator’s perspective there is no AML and KYC for cash transactions, and that’s what the push for CBDCs is all about.