Is cash still king?
AS the Bank of Jamaica (BOJ) inches closer to realising the full roll-out of its central bank digital currency (CBDC) or Jam-dex, the bank is clarifying that it is not launching a war on cash.
While speaking at the recent Jamaica Observer Business Webinar, deputy governor of banking & currency operations & financial markets at the BOJ, Natalie Haynes, and division chief for financial markets infrastructure Dr Novelette Panton both admitted that by and large, cash is still king in Jamaica.
“If you look down at Coronation Market, most persons want to use cash, how do we get those persons to buy into Jam-dex?” Haynes pondered.
A 2020 study done by Mastercard in Jamaica found that only 42 per cent of the people in Jamaica use credit or debit cards for their purchases in stores as the favourite method of payment. The data confirm that most Jamaicans still prefer to use cash to complete transactions instead of electronic or digital means.
Nevertheless, the annual Global Payments Report by Worldpay from FIS found that “Cash payments in the US made up $1 trillion of in-store payments in 2020, down roughly 29 per cent from $1.4 trillion in 2019.”
The report also projects that by 2024, cash will account for less than 10 per cent of in-store payments in the US and only 13 per cent of payments worldwide.
Notwithstanding, Panton explained that CBDC is not intended to replace cash. In fact, she reiterated that Jam-dex is cash in a digital form.
“We do not want to set up an antagonistic relationship between cash and CBDC. We know that there’s convenience in having liquid funds but at the same time, we do not want to be saying that cash is king all the time. Cash and CBDC will complement each other,” Panton noted.
This view was supported by her colleague Haynes, who went on to say that there is an expectation that Jam-dex will become more popular overtime.
“Right now cash in circulation is over $200 billion and what we are saying is if overtime you can get a substitution of even five per cent per annum switching to CBDC, we would consider that a success. It’s going to take time and it all depends on the user experience,” said Haynes.
On that note, director of information and communication technology at Advanced Integrated Systems (AIS) Bovel Blake cautioned that the Jam-dex roll-out must be carefully managed to ensure it delivers an experience which consumers will be receptive to.
“A critical element of this project will be the front-end experience, how we handle transactions with the customer, ease of on-boarding and the whole user experience in terms of this digital currency. What’s going to be critical is the level of innovation and creativity that these wallet providers will bring to the table that will excite the consumer and engage them, because let’s face it, cash is hard to let go of by consumers, it’s easy to use, there’s a high level of security in it, you will see what happened when we had the onset of the pandemic the sort of run we had on the various stores to get money. That suggests that consumers love to have physical money that they can hold on to,” Blake stated.
He continued, “it’s going to involve collaboration amongst the partners in this ecosystem to ensure that the user experience is fully accommodative.”
In the meantime, Haynes stressed that the BOJ’S priority is to ensure that consumers have a wide variety of payment options which can work seamlessly together.
“We’re gonna look at short term and medium term. In the very near term we don’t expect that substitution will take place fully between cash and CBDC and I will hasten to add here that the introduction of CBDC is for cash, it’s not to compete with debit cards or the online banking experience. We could have been very autocratic and say by 2025, we shall not be issuing any more physical banknotes and coins but we’re not doing that,” said Haynes.
Although Jam-dex is not held in a bank account, Panton noted that the peer-to-peer feature allows consumers to move funds easily between their digital wallet and deposit-taking accounts. In doing so, Panton explained that Jamaicans have more flexibility in how they use currency across the island.