ECCB charts a digital future

Above: ECCB Governor Timothy Antoine. Photos courtesy ECCB.

BitDepth#1253 for June 11, 2020

Could you imagine a Currency Union where globally competitive businesses and industries predominate; young people are productively engaged and full of hope; and citizens are not merely striving but thriving? That is our vision.
– Governor Timothy Antoine, writing in the ECCB strategic plan for 2017-2021.

The Eastern Caribbean Central Bank (ECCB) has served as the monetary authority for eight islands of the Eastern Caribbean since 1983.

The currency issued by the ECCB is the legal tender of the eight islands, Anguilla, Antigua and Barbuda, Commonwealth of Dominica, Grenada, Montserrat, St Kitts and Nevis, Saint Lucia, and St Vincent and the Grenadines.

But even within that unusual and admirable example of fiscal harmony in the region, there are significant challenges to commerce.

“You can’t really integrate the region if you have to move cash by plane or boat,” said Sybil Welsh, Senior Project Specialist at the ECCB at a CANTO Conversations webinar.

ECCB recorded transaction ranges across the currency union.

While the currency travels through member islands, banking facilities and transfer capabilities are not implemented as fluidly.

“If you don’t address the frictions, the inefficiencies, then we will not drive the growth trajectory,” Welsh said.

“It is still prohibitive for us to do business with each other, even though we are one bloc, because we are paying significant transfer fees.”

The digital currency promises to jump over that hurdle.

The ECCU payment system will require a reexamination of the regulatory framework, the engagement framework and the currency framework and a pilot project using the blockchain based digital currency, dubbed DXCD will test and expose the issues that arise from turning the promise inherent in money from paper to bits.

The ECCB was not the first Caribbean financial institution to test digital currencies. The Central Bank of The Bahamas has just come to the end of Project Sand Dollar, a pilot effort at establishing a digital currency.

The ECCB is targeting between 2019 and 2025, a 50 percent reduction in the use of cash, an 80 percent reduction in the use of cheques and growth of between 40 percent and 60 percent in the use of credit cards, debit cards and electronic payment systems.

The currency is not a cryptocurrency, but benefits from the developments in FinTech that have fuelled that sector.

ECCB projections for the influence of digital currency on transactions.

The bit-based legal tender, backed by the ECCB, uses a peer to peer digital architecture to create a frictionless financial transfer environment within the Eastern Caribbean.

The system uses a secure private blockchain for transparency with the network operator validating transactions.

The ECCB is underwriting the cost of implementing the project along with its infrastructural cost. Network operators in the region have been approached to zero-rate the cost of data transfer via smartphones.

“It is not a matter of getting rid of the banking sector, what’s required is a marriage of FinTech and our brick and mortar banks to create a more resilient financial sector,” Welsh said.

The ECCB would like to see banking evolve in the region, becoming more agile and frictionless and it is creating a regime that it hopes will drive that process.

The ECCB was working on a survey of financial trends in its member nations when Covid-19 interrupted the project, but the authority is sure that a large percentage of the citizens of the region are underbanked, daunted by sometimes staggering fees to transfer money between island states.

The pilot will allow individuals with minor identification requirements to fill digital wallets with up to EC$1,000 in DXCD versions of the currency, with increased requirements allowing larger sums to be converted to bits.

The digital cash has same fixed exchange rate of $2.7 EC to USD$1.

Payment and verification is a real-time transaction using end-to-end encryption on both sides of the purchase transaction.

Individuals and business with an established relationship with banks will be allowed to work with larger sums.

“You can’t really integrate the region if you have to move cash by plane or boat.”
– Sybil Welsh

In the ECCB model as with most Caribbean central banks, the digital currency is issued by the Central Bank, moves to financial institutions and is then made available to customers.

DXCD is an opportunity for the ECCB to widen the scope of the financial institutions it works with beyond commercial banks and potentially to disintermediate them entirely for some transactions.

It’s a question that many countries are facing as digital currencies lubricate the relationship between the public and the Central Bank resource and increasingly, the commercial banking system and other financial institutions will need to rethink their role in the value chain of finance.

The ECCB was originally created with a mission to maintain the stability of the Eastern Caribbean’s currency and the integrity of the banking system, now it must chart a new course for modern finance for eight small islands facing the challenge of operating with fiscal transparency and accountability in global economies that demanding rigorous legal protections to participate the world’s financial markets.