Central bank digital currency: lessons from The Bahamas  

In October 2020, The Bahamas launched the world’s first central bank digital currency (CBDC), the SandDollar. Three years on, as CBDC testing and development takes off worldwide, Derek Sean Rolle, Deputy Governor, Central Bank of the Bahamas, shares SandDollar’s story so far.

Can you tell us about the background to SandDollar’s introduction? 

It wasn’t innovation for innovation’s sake. Rather, SandDollar emerged through twenty years of work to solve financial exclusion by eliminating obstacles to financial services. 

It’s important to keep in mind our country context. Many citizens live in remote locations. It’s expensive and inefficient to transport cash, and bank branches are unsustainable given the small population on most islands.  

We are vulnerable to severe weather events. In 2019, Hurricane Dorian caused widespread flooding and mass destruction on isolated islands, and significantly disrupted financial services and cash availability. 

The Bahamas’ high mobile phone use, and the emergence of digital financial services, were other important factors.  

Ultimately, a central bank digital currency seemed the most inclusive, secure and convenient way to make payment services accessible to everyone in the country, at no or low cost. 

What are SandDollar’s objectives? 

First and foremost, it’s about financial inclusion – expanding access to individuals and communities with limited or no access to traditional banking services. Secondly, it’s about providing a safe and efficient means of payments for individuals and businesses, particularly MSMEs. 

We aim to improve payment system efficiency and stability by reducing the reliance on physical cash and payments intermediaries, and enhance payment system resiliency by providing a centralized alternative to traditional banking platforms. 

Finally, we want to reduce the risk of money laundering and terrorist financing through a more transparent digital financial system. 

How does SandDollar work in practice? 

The SandDollar is a digital representation of the Bahamian dollar, with the same rights as banknotes or coins, designed to be used on mobile wallet platforms. Unlike cryptocurrencies, which are stored-value digital assets, the SandDollar is true legal tender, its stability and value backed by foreign reserves. 

Residents can access their digital SandDollar-enabled wallet either via a mobile device or using a physical payment card, although the latter is less frequent in practice.  

Three wallet categories exist. Basic (Tier One) wallets have a $500 holding limit and a $1,500 monthly transaction limit, and users do not need to go through any consumer due diligence processes. Premium (Tier Two) wallets have an $8,000 holding limit and a $10,000 monthly transaction limit, and users require risk-based identity checks. Business (Tier Three) wallets are designed for merchants, with transaction limits set on a case-by-case basis. 

Transactions are validated almost instantaneously, and there are no fees or transaction costs for the consumer.

The payments system uses multi-factored authentication, high level encryption protocols, and enhanced KYC/AML standards. As SandDollar is built on a blockchain-based platform, each transaction is irrefutable and traceable.  

How widespread is its use? 

Currently, $1.4 million of the currency is in circulation, up 30% from 2022, but still representing under 1% of currency in circulation. 

There are over 100,000 registered wallets, equivalent to about 25% of the population. There are 1,800 registered merchants, and 9 SandDollar authorized financial institutions. 

Where does SandDollar go from here? 

The Central Bank holds regular awareness-raising events across the country, educating consumers and merchants about how SandDollar works, and encouraging its adoption.  

We’re working with Government agencies to create efficiencies in tax collection and disbursements, either as payroll solutions or social aid.

We’re encouraging authorized financial institutions to develop products using SandDollar. We’re making it easier for new users to get started, and will soon release an improved Wallet 2.0 with key self-service and convenience features. 

We’re also improving SandDollar’s offline functionality and enhancing Automated Clearing House integration. 

In other words, while we’ve come a long way in a short time, SandDollar’s journey is only starting.