Financial sovereignty requires Caribbean cryptocurrency solutions – By David Jessop

 The view from Europe:  By David Jessop

David Jessop

Last month Facebook announced that it will roll out in 2020 a global digital currency to be known as Libra.

It is a decision that has profound implications for all financial institutions everywhere, raises new regulatory concerns for Central Banks and governments, and challenges Caribbean financial sovereignty.

In outline, Libra is intended to be a “global currency and financial infrastructure” powered by Facebook’s encrypted blockchain technology. It will, once operational, offer banking through Calibra, a smartphone digital app, either on a standalone basis or through WhatsApp and Facebook Messenger.       

What Facebook is proposing is a new global financial entity and a currency that will circumvent the problems of correspondent banking, exchange rate fluctuations and interoperability.

Partnered with PayPal, Visa, Uber, Coinbase, Lyft, Mastercard, Vodafone, eBay and Spotify, and others, Facebook, says its new entity will create a global ‘stablecoin’ pegged to existing assets including the US Dollar or Euro, making transactions less volatile.  It will be serviced by a collective of companies operating though a ‘Libra Association’, a not-for-profit Swiss based organisation, from where it says it will manage a ‘reserve Libra’ and validate transactions.

The effect will be to provide global access to digital banking to those who are unbanked or conventionally banked. It will enable through an electronic wallet immediate transfers and payments, potentially disrupting the existing financial infrastructure in the Caribbean and elsewhere, reducing for users the cost of commercial transactions, remittances, and payments.

The impact could be significant.

In the Caribbean, studies indicate that although 65 percent of the population is unbanked, mobile penetration stands at about 74 percent of the population. Other research suggests that Facebook Messenger and WhatsApp have on average a 37 percent national penetration rate across the region as a whole, including Haiti and Cuba: a figure that rises to over 50 percent in some Anglophone nations.

Libra also has important geopolitical implications. It will likely spur nations including China and Russia that express an interest in an alternative reserve currency to the US Dollar, to develop alternative systems. Both nations are unwilling to cede control to any entity which at heart is US-oriented, so may well choose to build on other experience such as that of the Chinese Alibaba Group which through Ant Financial already has one billion users largely in the Asia-Pacific region.

Libra will undoubtedly also be challenged by commercial banks which are developing their systems. More significantly, it will have to overcome regulatory hurdles, antitrust and information privacy concerns, as the EU and other regulators expand existing investigations into the company’s ability to control and digitally harvest user information and seek to break up ts dominance.

Notwithstanding, the Caribbean is woefully unprepared for where Libra leads.

If governments and their Central Banks are to retain some semblance of financial sovereignty, they need to move to adopt harmonized regulatory standards and pay much more attention to the interests of the region’s established remittances transfer companies. They also need to consider, the potential role that recent start-ups like Bitt Inc and others might play, companies that understand the economic and political importance of regional financial services companies not being eclipsed by powerful external providers.

Bitt, a Barbados-based Fintech company, envisages central banks issuing digital currencies, enabling eventually the free movement of capital across the region through bilateral digital currency swap agreements. It is hoping to build on its experience of working with the Eastern Caribbean Central Bank’s (ECCB) digital currency pilot project to develop blockchain-based digital currencies for Central Banks and a retail transaction and remittances business.

Its chief executive officer (CEO) Rawdon Adams believes that as Caribbean currency unification is unlikely in the near future, such an approach would obviate existing correspondent banking arrangements for intra-regional transactions: a process which presently incurs significant fees, involves two or more banks in the US or elsewhere, is slow and has recently been subject to a growing number of politically-led compliance requirements.

To this end, the company is working with the Caribbean Development Bank, the IDB, CARICOM as well as with other interested Fintech companies and academics to explore though a working group the creation of a ‘Caribbean Settlement Network’. This, Bitt Inc suggests, would be an inclusive not-for-profit regional public entity that would facilitate Caribbean businesses and residents’ ability to conduct intra-regional digital financial transactions instantly on smartphones or tablets at a fraction of the current cost of wire transfers or other remittance channels.

Quite separately, Cuba has also begun to study the possibility of using cryptocurrency for national and international commercial transactions. According to the country’s president, a team from its ministry of economy, and a group of academics are working together to explore the possibilities.

All this comes at a time when the issue of the withdrawal of correspondent banking services and de-risking by international banks seems to have fallen off the Caribbean agenda, going unmentioned in the communiqué issued following the recent CARICOM summit in Saint Lucia.

Early next year, Barbados’ Prime Minister, Mia Mottley, is expected to announce new measures intended to unify the financial architecture of the Caribbean Single Market and Economy (CSME). Despite this, little has been said when it comes to revitalising the CSME and the regional integration process about the role of digital currencies for regional transactions, and the benefit they might bring to companies and ordinary citizens.

Mottley is known to be interested in the topic, but other Caribbean governments also need to recognise the implied challenge that cryptocurrencies will have in future on the region’s financial sovereignty.

Facebook’s announcement suggests that there is a need to rapidly explore and develop the Caribbean owned digital currency solutions.

David Jessop is a consultant to the Caribbean Council and can be contacted atdavid.jessop@caribbean-council.org. Previous columns can be found at http://www.caribbean-council.org

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Comments

  • kamtanblog  On July 29, 2019 at 2:29 am

    It seems the crypto currency revolution
    is with us and to become a challenge to
    the USD$ as the world reserve currency.
    Will fantasy money replace “real” money ?
    It’s achilies heel
    How do governments “regulate” it ?
    China kicked google an impossible task
    in regulating one of main reasons.
    The social media revolution has challenged
    the red mao one !
    Governments are playing catch up with
    their control of social media. They are
    already able to regulate MSM media.
    Will they be able to do so with Social media.
    Doubt it !
    More questions than answers

    Kamtan

  • wally n  On July 29, 2019 at 2:32 pm

    #1 facebook involved??????? seems there are many crooked people, much smarter and even more crooked than facebook, hanging around waiting and waiting. Caribbean already hand to mouth, willing to put all their money into a flawed system, lose everything with the press of a button/key stroke
    That crap has a longgg way to go before any one should consider it, maybe after some of the crooks manipulating large Social Media sights go to jail.
    My friend and former accountant, Berbice, London School of Economics, once said “Ever notice that rich people always have have a large portion of their wealth,where you can touch it, paintings ,property,….you own it”
    We will see……

    • kamtanblog  On July 29, 2019 at 2:49 pm

      FB ceo should not only be fined
      He should have been incarcerated
      Clever crook !
      But with Humpty Dumpty and Bojo
      now in power it’s wont be long before USA/UK
      file for bankruptcy!
      Not only will they rock the titanic
      They will eventually sink it !

      Kamtan

  • wally n  On July 29, 2019 at 9:08 pm

    BTW TODAY……………………..Woman arrested, accused of hacking 100 million Capital One records????????

    • kamtanblog  On July 30, 2019 at 2:18 am

      Only the tip of the iceberg that may yet sink the titanic.
      It was dark ages
      Followed by the industrial revolution
      Two world wars later and it’s the “fantasy”
      revolution ( social media) replacing MSM
      as info source. We will not only be replaced by robots ..we will become robots.
      Micro chip replace or implants to improve
      (Speed up) mental abilities.
      A bit far fetched but not impossible.
      As per Dr Bernard first heart transplant.
      Brain implants ?
      Go figure

      Kamtan

  • kamtanblog  On July 30, 2019 at 2:34 am

    David Jessop is “speculating”…
    Crypto’s are fantasy money….it will not replace real money but can “supplement” it to speed up the banking processing.
    It’s in it embryonic stage of its development
    as a tool for processing transactions.
    My concerns are the speed at which it develops….gimmick to operational reality.

    Time will tell !

    Kamtan

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