By Kevin Luarca
Mastercard and Island Pay launched a prepaid card which allows users to transact using the Central Bank of The Bahamas issued digital currency - Sand dollar, and exchange it for Bahamian dollar in any shop that accepts Mastercard
Mastercard and Island Pay have launched what they claim to be the world’s first central bank digital currency (CBDC) linked prepaid card in The Bahamas. The prepaid card allows users the option to instantly convert the digital currency to traditional Bahamian dollars and pay for goods and services anywhere Mastercard is accepted, according to a press release.
The Sand dollar, launched in October 2020, is the official digital currency issued by the central bank and carries the same value and protection as the Bahamian dollar (BSD). Similar to the BSD, the Sand dollar is backed by the country’s foreign reserves and is regulated and monitored by the Central Bank of The Bahamas. It can be used for retail payments, government disbursements, and other transactions through authorised financial institutions. It also supports an ‘offline functionality’ wherein built-in safeguards will allow users to make a pre-set dollar value of payments when communications access to the Sand dollar network is disrupted. The wallets will update against the network once communications are re-established.
John Rolle, governor of Central Bank of The Bahamas, said, “We welcome this approach to combining digital currency use with access to foreign currency and other payment outlets. The Central Bank of The Bahamas will continue to encourage fintech developments that tie into the Sand dollar infrastructure while allowing us to satisfy best global practices for regulation of the space”.
Raj Dhamodharan, executive vice president of digital asset, blockchain products, and partnerships, Mastercard, said “This partnership is an example of how the private and public sector can rethink what’s possible while delivering the strongest levels of consumer protection and regulatory compliance. We’re creating a lot more possibilities for governments, shoppers and merchants, allowing them to transact in an entirely new form of payment".
Digital payments in The Bahamas have seen rapid adoption due to country’s geography which consists of a group of about 700 islands. Safe transportation of paper currency and presence of brick and mortar branches in the individual islands have been a challenge for the commercial banks operating in the country.
A case study for future CBDCs
As one of the world's earliest CBDC and prepaid card linked fiat digital currency, many institutions are closely monitoring the financial evolution taking place in The Bahamas. The response to CBDC by both the locals and the business enterprises operating in The Bahamas will help determine key areas that need improvement, plan ways to scale-up adoption, and improve interoperability with existing global financial players.
At present several countries have expressed their desire to issue their own CBDC. Countries like China which already has a large population of digital payment users and players see CBDC as the next logical step. Big countries like the US and other European countries look at it as a way to decrease transaction costs, bolster regulations, curb anti-money laundering, and provide additional payment options for consumers. Meanwhile, countries in Africa, where there are more people with mobile phones than bank accounts, see CBDC as a necessity for supporting its growing economies. Whichever is the case, CBDC seems to be the next phase of the global financial revolution.