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By Elizabeth Howcroft and Marc Jones
LONDON (Reuters) - The Bahamas, the first country in the world to issue a central bank digital currency (CBDC), is now preparing regulations that will require commercial banks to provide access to the e-money in a bid to stimulate adoption, its central bank governor told Reuters.
The Bahamas' role as a CBDC pioneer - it issued its "Sand Dollar" digital currency in 2020 - means that what it does in the Caribbean is closely watched by the more than 130 countries, from Europe to China, that are now exploring digital versions of their currencies.
John Rolle, the islands' central bank governor, who oversaw the Sand Dollar's launch nearly four years ago, said with take-up still limited, carrot was turning into stick and commercial banks were now being told of regulations that will effectively force them to distribute it.
"We've begun to signal that to our institutions," Rolle told Reuters during a trip to London, saying that rules should be in place within two years.
"We foresee a process where all of the commercial banks will eventually be in that space and they will be required to provide their clients with access to the central bank digital currency."
CBDCs have proven a point of contention between central and commercial banks, with banking lobby groups warning that the currencies could encourage deposit flight because they effectively offer the public a central bank bank account.
The European Central Bank has signalled it will make it mandatory for euro zone retailers and banks to accept and distribute a future digital euro if it goes ahead, but that is still years away, meaning the Bahamas would be first once again.
CBDCs come in two forms, either in the Sand Dollar's 'retail' mould where the public can use it, or as a 'wholesale' version used only by financial institutions.
Ordering banks to make the Sand Dollar available would require them to make significant changes to their IT systems, but the Bahamas central bank sees it as vital to boost the CBDC's adoption and mobile payments more generally.
The Sand Dollar currently accounts for less than 1% of currency in circulation in the Bahamas, while wallet top-ups fell to $12 million in the eight months to August last year, compared to $49.8 million in the same period the year before, central bank data shows.
Other countries such as Nigeria and Jamaica that have also launched CBDCs are also seeing minimal usage.
Part of the problem, CBDC watchers say, is that they don't yet offer any obvious advantages over existing payment methods, while public concerns remain in some countries that they could pave the way for more government snooping.
Rolle said requiring commercial banks to embed the Sand Dollar in their systems should help usage but acknowledged the bigger prize was to get more shops, restaurants and other businesses to accept it as a form of payment.
The Bahamas is unlikely to offer financial incentives to use its CBDC, as India has during trials for an e-rupee, Rolle said. Nor will it offer an interest rate on Sand Dollars wallets, something Israel has floated.
(This story has been refiled to fix typo in paragraph 3)
(Reporting by Elizabeth Howcroft and Marc Jones; Editing by Tommy Reggiori Wilkes and Susan Fenton)
