Caribbean Retail CBDC Watch: The Adoption Dilemma from Sand Dollar to JAM-DEX

Caribbean Retail CBDC Observations: The Adoption Dilemma from Sand Dollar to JAM-DEX

Central bank digital currencies (CBDCs) around the world are moving from theory to reality. In the Caribbean, the Bahamas, the Eastern Caribbean Currency Union, and Jamaica have taken the lead in launching retail CBDCs, attempting to shift cash-dominated economies toward digitalization. However, years after these projects were launched, market feedback has fallen far short of expectations. This phenomenon prompts deeper reflection: What exactly are the factors constraining CBDC success? This article draws on the latest research from the Federal Reserve Bank of Kansas City to analyze the design, adoption, and challenges of Caribbean retail CBDCs, offering insights for global fintech development.

Industry Background: The Urgency of Cash Economies and Digital Transformation

Small open economies in the Caribbean have long relied on cash transactions. The costs of printing, transporting, and storing cash are high, financial services coverage is uneven, and cross-border payments are inefficient. These issues hinder economic vitality. The Bahamas has been modernizing its payment system since 2003, establishing real-time gross settlement (RTGS) and adopting automated clearing house (ACH), yet cash still dominates daily transactions. The Eastern Caribbean Currency Union and Jamaica face similar financial inclusion challenges.

Against this backdrop, retail CBDCs are seen as an opportunity to upgrade financial infrastructure. They can not only reduce reliance on cash, but also leverage digital wallets to provide inclusive financial services and give central banks a sovereign tool to counter competition from private digital currencies. Unlike general payment innovations, CBDCs are the digital form of fiat currency, backed by state credit, and thus have unique advantages in policy support and use cases.

Current Developments: Design and Adoption Status of the Three CBDCs

Sand Dollar: First Mover and Market Cold Reception

The Bahamas officially launched the Sand Dollar in October 2020, becoming the world's first retail CBDC. The system uses a private, permissioned distributed ledger technology (DLT), developed by technology company Movmint (formerly NZIA Limited), and selected Proof of Work as the consensus mechanism. Wallets are divided into Tier 1 and Tier 2, with different KYC intensity matched to different transaction limits, balancing user convenience and compliance requirements. Sand Dollar also includes an offline payment feature to accommodate network fluctuations on remote islands.

Despite the obvious first-mover advantage, Sand Dollar's adoption has not met expectations. One year after launch, circulation was only about 300,000 Bahamian dollars. Even after later adding government payments and ACH access, by September 2023 circulation had only risen to 1.1 million Bahamian dollars, accounting for 0.19% of currency in circulation. Although the number of user and merchant wallets is growing, activity levels still need improvement.

DCash: Technical Confidence and Operational CrisisThe Eastern Caribbean Currency Union's DCash was launched in 2021, developed by Bitt based on Hyperledger Fabric and deployed on Google Cloud. Its wallet types include registered and value-based wallets, tailored for banked and unbanked users respectively. However, shortly after launch, the platform experienced nearly 10 weeks of service interruption, leading to significant user attrition. After recovery, the total number of wallets was only about 4,000, with adoption far below expectations. This incident highlights the fatal impact of system resilience on CBDC trust.

JAM-DEX: An Innovative Attempt Without Blockchain

Jamaica's JAM-DEX was launched in 2022, developed by eCurrency, but adopted a completely different technical route—based on a central bank centralized ledger, settling digital tokens through the RTGS system. This design allows tokens to be verified independently of the ledger, offering strong transaction privacy. Its companion wallet Lynk was developed by a subsidiary of National Commercial Bank and also serves as an e-money wallet. However, JAM-DEX similarly failed to stimulate widespread interest; public acceptance and merchant acceptance coverage remain key shortcomings.

Impact on the Financial System

The Caribbean retail CBDC experiments reveal potential impacts in digital financial transformation:

• Payment efficiency and cost: CBDC can reduce cash processing and payment settlement costs, especially for cross-border remittances and underbanked regions. But efficiency dividends must be built on user scale and transaction networks.
• Financial inclusion: Digital wallets can transcend physical bank branch limitations, providing payment access to remote areas and unbanked populations. However, KYC requirements and the digital divide may exclude some vulnerable groups.
• Banking competition and collaboration: CBDC may prompt traditional banks to improve service quality, but may also trigger deposit disintermediation and change bank profit models. Central banks need to design intermediary models together with commercial banks to balance competition and stability.
• Compliance and anti-money laundering: The "controlled anonymity" feature of CBDC provides new perspectives for anti-money laundering (AML) and counter-terrorism financing (CFT). Financial regulators need to carefully balance collecting transaction data and protecting personal privacy.
• Risk management: CBDC systems face operational risks such as cyberattacks and technical failures. The DCash outage case shows that any interruption can destroy user trust and negatively impact financial stability.

Challenges

From the Caribbean experience, we can distill four major challenges for retail CBDC promotion:1. Data Privacy and Government Surveillance Concerns: Even if central banks design anonymity mechanisms, the public remains skeptical of government tracking of transaction data, especially in politically sensitive regions. 2. Cybersecurity and Continuous Availability: CBDC systems must provide reliability and offline transaction capabilities comparable to cash; otherwise, they will struggle to replace cash. 3. Integration with the Existing Financial Ecosystem: CBDC platforms need to connect to core banking systems, payment networks, merchant acceptance terminals, and coordinate with emerging infrastructures such as real-time payments and open banking; otherwise, they will become islands. 4. Regulatory Uncertainty and Cross-border Coordination: Policies on digital identity, cross-border data flows, and anti-money laundering standards have yet to be unified, hindering the cross-border use of CBDCs and financial institutions' investment.

Furthermore, the lack of consumer habits and incentive mechanisms makes it difficult for CBDCs to compete with mature mobile payment systems or stablecoins. Without use cases, there is no user stickiness.

Future Outlook

Looking ahead three to five years, global central banks will draw lessons from Caribbean practices and adjust their CBDC strategies. First, technology choices will place greater emphasis on interoperability, scalability, and resilience, rather than pursuing the "cutting edge." Second, CBDC promotion must be deeply integrated with digital identity and embedded finance scenarios, becoming a natural choice for daily transactions by businesses and consumers.

We may see CBDCs integrated with real-time payment networks, open banking, and cross-border payment infrastructure, forming an efficient digital financial ecosystem. Meanwhile, competition from stablecoins and other private payment instruments will spur central banks to accelerate innovation and explore applications of programmable money and smart contracts. The early setbacks in the Caribbean provide valuable "pathfinding" experience for central banks worldwide. Future transformation depends not only on technology, but also on policy design, ecosystem collaboration, and user value proposition.

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Source: Kansas City Fed research brief "Observations from the Retail CBDCs of the Caribbean" Link