Eastern Carribean central bank to launch blockchain-based digital currency..

ECCB conducts monetary policy for eight island economies:

 Anguilla, Antigua and Barbuda, Commonwealth of Dominica, Grenada, Montserrat, St Kitts and Nevis, Saint Lucia, and St Vincent and the Grenadines.

Apart from Sweden, ECCB is now looking to issue its own digital currency:

The Eastern Caribbean Central Bank (ECCB) and the Barbados-based fintech company, Bitt Inc. (Bitt) have signed a contract to conduct a blockchain-issued Central Bank Digital Currency (CBDC) pilot within the Eastern Caribbean Currency Union (ECCU).

The watershed contract was signed on 21 February at the ECCB’s Headquarters in Basseterre, St Kitts and Nevis.

This ECCB CBDC pilot is the first of its kind and will involve a securely minted and issued digital version of the EC dollar (DXCD). The digital EC dollar will be distributed and used by Licensed Financial Institutions and Non-Bank Financial Institutions in the ECCU. The DXCD will be used for financial transactions between consumers and merchants, including peer-to-peer transactions, all using smart devices. For example, an individual in St Kitts and Nevis will be able to send DXCD securely from his/her smartphone to a friend in Grenada in seconds – and at no cost to either party.

The Governor of the ECCB, Timothy N. J. Antoine, emphasised that in contrast to previous CBDC research and experimentsthe ECCB is going a step further.

“This is not an academic exercise. Not only will the digital EC Dollar be the world’s first digital legal tender currency to be issued by a central bank on blockchain but this pilot is also a live CBDC deployment with a view to an eventual phased public rollout. The pilot is part of the ECCB’s Strategic Plan 2017-2021 which aims to help reduce cash usage within the ECCU by 50 per cent, promote greater financial sector stability, and expedite the growth and development of our member countries. It would be a game-changer for the way we do business”.

CEO of Bitt Inc., Rawdon Adams, said, “I thank the ECCB for choosing Bitt. Our mission is the practical application of cutting edge technology to solve persistent financial problems. It is about a successful currency union building on its impressive record of financial stability, development and integration to deliver a quantum improvement to the lives of all its 630,000 citizens. Enhancing economic growth and the quality of life of ordinary people is the aim.”

The ECCB is now poised to embark on the DXCD pilot from March 2019. The pilot will be executed in two phases: development and testing, for about twelve months, followed by rollout and implementation in pilot countries for about six months. As part of pilot implementation, the ECCB will ramp up its sensitisation and education initiatives to facilitate active public engagement throughout all member countries.

The ECCB is being technically supported on this Project by Pinaka Consulting Ltd. 

The Governor in a later speech explained the motivation:

Some of you may be wondering, what precisely, is the motivation of the Eastern Caribbean Central Bank (ECCB) in making this bold move? Simply put, it is shared prosperity for the citizens and residents of the Eastern Caribbean Currency Union.

In our Strategic Plan 2017-2021, we made the case for socio-economic transformation and issued a clarion call for collective action to transform the ECCU together. I have said it before and I reiterate it today, such transformation is not possible without digital disruption. I therefore urge us to avoid a “failure of imagination” as we craft the way forward.

We must never forget that all the technologies that we now take for granted, including our smartphones were once mere ideas.   Indeed, as William Blake, visionary British poet pointedly reminds us “what is now proved was once only imagined”.

For our region to improve our development prospects and performance, we must expedite our digital transition. To this end, regulators and innovators must work together. This pilot exemplifies such collaboration.

Bitt first approached the ECCB about two years ago with the idea of a digital EC dollar. As we continued thinking about transformation of the ECCU, we became intrigued by the possibility of a digital fiat currency for our region. At that time, we were finalising our Strategic Plan and we made a decision to test and learn more about this idea through a pilot. Five months after the launch of our Strategic Plan, we signed an MoU with Bitt in March 2018 to collaborate on this idea, and so our journey to this pilot began.

The decision of the ECCB to partner with Bitt was premised on several considerations including:

    • Our shared values in respect of innovation for development;
    • Our vision for a digitally integrated region;
    • Bitt’s capacity: technical and financial; and
    • Bitt’s Caribbean identity: presence and people.

Ladies and gentlemen, the transformation of the ECCU necessitates that we make a shift and a leap. We must move from our comfort zone to a challenge zone. But we must not stop there. From there, we must move into a creative zone. In this zone, we are obliged to challenge old assumptions, examine our cultural hang-ups and stretch our minds to embrace new possibilities.

A cursory analysis of the ECCU confirms that while the exchange rate remains firmly entrenched with a strong backing ratio averaging around 98.0 per cent; there remains a significant gap between our region’s growth target and actual performance. Last year, our region grew by 2.7 per cent. This year, we project growth of 3.1 per cent and next year about 3.5 per cent. While the direction is positive, our current growth trajectory falls well below our target of 5.0 per cent. Furthermore, unemployment especially among youth is unacceptably high. In some countries, the rate of youth unemployment doubles the national rate of unemployment. Without a doubt, we need to elevate the ECCU’s growth trajectory. Such elevation, external factors aside, requires a combination of smart reforms and investments in the ECCU.

Cash will remain. Idea is to lower cash overtime:

At the outset, I want to make it abundantly clear; the ECCB does not intend to eliminate the use of cash. Cash has its convenience and will continue to play an important role in our economy for the foreseeable future. That said, the ECCB is committed to reduce our region’s use of cash and cheques. Why?

In the ECCU, about 80.0 per cent of all payments are effected using cash or cheques. When we survey our current payments landscape, we cannot help but conclude that payments are still too slow and too expensive. Many of us know only too well, the high costs associated with certain banking services.

Although a full-scale analysis of the social cost of physical cash in the ECCU has not been carried out, it is indisputable that the costs of cash services, inclusive of transporting, storing and securing, are extremely high. Invariably, these high costs (not fully recognised by many businesses) are passed on to consumers. Within the informal sector, cash tends to be the dominant payment channel. This reality means that the actors in the informal sector bear a significant burden of the cost inefficiencies of cash transactions.

Lest, we become too critical of our small businesses, we should also acknowledge that they too face real constraints. For example, some are required to pay as much as 3.5 per cent on every credit card sale. This exorbitant charge reduces and, in some instances, removes the incentive for small businesses to offer their customers electronic options such as credit and debit cards. It also reduces the ability of these businesses to offer their customers discounts. These experiences are sometimes referred to as “financial frictions”.

It is against this backdrop that the ECCB seeks to help remove some of the current “financial frictions”. Indeed, it is practical issues such as these that that led the ECCB and Bitt Inc. to reach an agreement to develop and pilot the digital EC currency, with a supporting digital payments and transfers infrastructure. Ultimately, we wish to see our people spend less of their money on payment services and more on the goods and services they wish to consume.

Check out what all one needs to know to understand digital in the currency world:

The ECCB Central Bank Digital Currency (CBDC) pilot involves a securely minted and issued digital version of the EC dollar (DXCD). The digital EC dollar will be issued by the ECCB and distributed by licensed bank and non-bank financial institutions in the ECCU.

For the avoidance of any doubt, the digital currency will operate alongside cash as currently obtains. Indeed, the ECCB will soon launch a new family of bank notes using polymer.

The DXCD will be used for financial transactions between consumers and merchants, people-to-people (P2P) transactions, all using smart devices.

The objective of this pilot project is to assess the potential efficiency and welfare gains that could be achieved: deeper financial inclusion, economic growth, resilience and competitiveness in the ECCU – from the introduction of a digital sovereign currency.

IBM Hyperledger Fabric was selected as the blockchain platform because of its strong security architecture (private permissioned blockchain with strong identity management) and open source, which contributes to its security, flexibility and scalability among other desired attributes.

Hereunder are some of the key features of the platform:

    • Private Permissioned Blockchain
    • Open source, hosted and managed by Linux Foundation
    • Enterprise Grade Distributed Ledger
    • Supports business transactions
    • Confidentiality of data through channel architecture
    • Privacy in channels through private data feature
    • Better performance and scalability through flexible architecture

While one acknowledges, the benefits of Distributed Ledger Technology (shared ledger that allows records/blocks to be added and securely maintained in a way that prevents tampering), the ECCB recognises that network security is a non-negotiable for a central bank digital currency construct.

In light of this essential requirement, the private blockchain of IBM Hyperledger Fabric affords the ECCB, the ability to control who can access the network, submit and read the ledger of verified transactions, and who can verify them. Hence, the decision to opt for a private rather than a public blockchain.



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