Why Did Digital Currency in the Caribbean Fail? [Digital Won is Coming]②

Bahamas, Nigeria, Jamaica, and Others Launch Retail Digital Currencies
Low Usage Rates Lead to Assessment of Failure So Far
We Also Need More Thorough Preparation for Digital Won Introduction

The Bahamas, an island nation located in the Caribbean Sea of North America, amended its central bank law in 2020 and launched the world's first retail (general-purpose) central bank digital currency (CBDC) called the Sand Dollar. Due to frequent hurricanes, the Bahamas often experienced disruptions in its physical payment systems, and as a well-known tax haven, it had many opaque financial transactions. Therefore, the Sand Dollar, which can be used with just a smartphone, was introduced to enhance transaction efficiency and transparency.

Citizens of the Bahamas were able to convert their bank deposits into Sand Dollars stored in smartphone e-wallets and use them at general stores such as supermarkets, restaurants, and pharmacies. However, four years later, the introduction of the CBDC in the Bahamas is widely regarded as a failure. As of February this year, the circulation of Sand Dollars in the Bahamas accounts for only 0.5% of the total cash usage. Only about 1% of the entire population of the Bahamas uses the Sand Dollar.

Both the citizens of the Bahamas and commercial banks were reluctant to adopt the Sand Dollar. Bahamian banks were concerned about various side effects such as increased costs, security risks, deposit outflows, and reduced lending due to the introduction of the Sand Dollar. Citizens worried about personal information leaks and system instability caused by using the Sand Dollar.

Source: Bank of Korea

General-Purpose CBDCs Launched in Some Countries like Bahamas and Nigeria, but Popularization Remains Difficult

The International Monetary Fund (IMF) recently reported that "the Bahamas is struggling to popularize the Sand Dollar due to a lack of participation from banks and merchants," analyzing that "system deficiencies and low incentives related to Sand Dollar usage are the causes."

As the popularization of the Sand Dollar faced difficulties, the Bahamian government is discussing making the use of the Sand Dollar mandatory for banks. John Rolle, Governor of the Central Bank of the Bahamas, stated, "Since the introduction of the Sand Dollar, usage has not been smooth," and added, "Commercial banks are preparing to implement regulations that require them to use the Sand Dollar to some extent."

According to the IMF, there are only three countries worldwide that have officially introduced digital currencies for their entire populations: the Bahamas, Nigeria, and Jamaica. These countries share common traits such as high cash dependency, underdeveloped banking sectors, and low bank account penetration rates. However, like the Bahamas, Nigeria and Jamaica are also struggling with the popularization of digital currencies.

Image of a Sand Dollar from the Bahamas

Nigeria officially introduced its digital currency, the eNaira, in October 2021, one year after the Bahamas. Three years later, the eNaira accounts for only about 0.3% of Nigeria’s currency circulation, with a penetration rate of roughly 1% of the population. Jamaica followed Nigeria by introducing its digital currency, Jam-Dex, in 2022, but it also faces difficulties in popularization with a usage rate below 1%.

Besides these three countries, many others are preparing to introduce CBDCs. Among major countries, China is the most proactive. China began full-scale pilot operations of its CBDC ahead of the 2022 Winter Olympics. Currently, it pays some government officials their salaries in the digital yuan (e-CNY) and has started digital yuan payments with some countries, conducting various experiments. Major European countries and Japan are also reviewing the feasibility of CBDC introduction through pilot tests. According to the Bank for International Settlements (BIS), more than 100 countries are considering CBDC adoption. BIS forecasts that 24 countries will complete CBDC issuance by 2030.

Citizens Do Not Feel the Need to Use Digital Currency

The Federal Reserve Bank of Kansas City published a report in April analyzing the reasons for the failure of digital currency adoption in Caribbean countries such as the Sand Dollar and Jam-Dex. According to the report, merchants faced difficulties integrating digital currency accounts with existing banking systems, and banks hesitated to adopt digital currency projects. Merchants felt burdened by the costs of upgrading payment systems (POS) to accommodate digital currencies. The government and central banks also failed to sufficiently inform citizens about the reasons and benefits of using digital currencies, which was cited as a cause of failure.

Franklin Noll, a payments specialist at the Kansas City Fed, pointed out, "No CBDC has succeeded yet in the Caribbean," emphasizing, "For CBDCs to become popular, it is necessary not only to solve technical problems but also to provide consumers with value more important than cash." He added, "Central banks should not approach CBDCs with the simplistic attitude that once created, people will naturally use them."

Kristalina Georgieva, Managing Director of the IMF (International Monetary Fund), who visited Korea last December. Photo by Younghan Heo younghan@

The IMF argues that although some countries face difficulties in adopting central bank digital currencies, the advantages still outweigh the disadvantages. It emphasizes that digital currency adoption can enhance trust in the financial system and help prevent tail risks?low-probability but potentially catastrophic risks. Even if short-term adoption is difficult, gradual introduction with sufficient preparation can lead to successful popularization. The BIS also recognizes CBDCs as a core future financial infrastructure and urges central banks worldwide to experiment with tokenization of various assets such as bonds and to promote related legislation.

Kristalina Georgieva, Managing Director of the IMF, stated, "CBDCs can replace cash, which is costly to distribute," adding, "They can increase financial inclusion in regions with low bank account ownership and provide a safe and affordable alternative."