The Sand Dollar is a central bank digital currency (CBDC) developed by the Bahamas. The IMF believes that it has the potential to “foster financial inclusion and payment system resilience” in the Caribbean nation according to a new report.
The International Monetary Fund’s (IMF) Fintech Note series has released a new paper on the Sand Dollar, highlighting the advantages and disadvantages of the initiative.
According to the report, the Sand Dollar could help the Bahamas achieve its goal of becoming a “cashless society” by 2025. The currency could also help to reduce the costs of remittances and increase financial inclusion.
However, the IMF also warns that the Sand Dollar could have some negative consequences. These include the possibility of money laundering and terrorist financing, as well as challenges for monetary policy.
The Bahamas is not the only country to be exploring CBDCs. The People’s Bank of China is reportedly close to launching a digital version of the yuan, and other countries, such as Sweden and the Bahamas, are also working on similar projects.
To accelerate the adoption of the CBDC in the Caribbean nation, the IMF suggested that the Central Bank of the Bahamas promotes the digital currency through education campaigns. The monetary authority should also assess the feasibility of using the Sand Dollar for other purposes, such as paying taxes or utility bills.
In addition, the report said that the central bank should strengthen its own capacity on cyber security and other areas to “safeguard financial integrity” as the CBDC is pushed out to more users.
In terms of regulations, the report stated that the IMF sees it as “important” that the Bahamas develops “a robust supervisory and regulatory framework” for digital assets more broadly.
The Sand Dollar was originally set to launch in October 2020 but was pushed back due to the pandemic. At the time, Minister of Finance Peter Turnquest said that the digital currency would be “one of the most transformational projects” for the Bahamas.
When it comes to financial inclusion, the IMF report notes that the Sand Dollar could have a “significant impact”. The mobile phone-based system would allow users without bank accounts to store value and make payments. In addition, the system would be available to Bahamians living abroad, who remit around $3 billion back to the country each year.
Philip Jennings, Executive Director for the Bahamas, said that the central bank views the Sand Dollar as “an important vehicle for payments systems modernization and resilience, as well as financial inclusion.”
The IMF team believes that the Sand Dollar could be a model for other countries looking to launch their own CBDCs. “The experience of the Bahamas could provide valuable lessons for other countries that are considering issuing CBDCs,” the report said.
While the project is still in its early stages, the Bahamian central bank is already working on plans to expand the Sand Dollar’s reach. In particular, it is exploring ways to make the system available to small businesses and merchants.