The Bahamian government is set to implement measures that will require commercial banks to distribute its central bank digital currency (CBDC), known as the Sand Dollar. Despite the CBDC currently accounting for less than 0.41 percent of the currency in circulation, the Central Bank of The Bahamas has reported a decline in its usage over time. In most cases, a private business facing similar circumstances would be on the brink of closure. However, the central bank has different plans in mind.
In an interview with Central Bank of the Bahamas Governor John Rolle, Reuters reporters Elizabeth Howcroft and Marc Jones described Rolle’s approach as a shift from incentives to regulations to drive CBDC distribution. Initially, the central bank introduced rebates as an incentive for users to top up their CBDC wallets and spend the currency in stores. Despite these efforts, mass adoption remained elusive. Consequently, the government has decided to replace incentives with regulatory measures to compel banks to distribute the CBDC.
This approach is reminiscent of similar tactics employed by the Central Bank of Nigeria, which faced similarly low CBDC adoption rates of just 0.5 percent. In an attempt to incentivize adoption, the Nigerian central bank offered discounts on cab fare. When this failed, the bank withdrew cash from circulation, mandating the exchange of old notes for new ones within a two-month period. While this resulted in cash shortages and subsequent protests and riots, it ultimately led to a rise in CBDC adoption from 0.5 to 6 percent.
Although the Central Bank of The Bahamas is adopting a less extreme approach compared to its Nigerian counterpart, it highlights a fundamental difference between public and private sector endeavors. In the private sector, businesses that fail to attract customers are forced to either close down or pivot their business models. However, securing funds for a new venture requires convincing investors, and failure to do so often leads to the demise of the business.
In the public sector, projects are not as quick to shut down. The absence of voluntary funding means that government projects rely on the values and priorities of government officials. Additionally, governments have the power to resort to force, as seen with the Nigerian government’s withdrawal of cash and the Bahamian government’s plan to enforce CBDC distribution through banks. Unlike businesses, governments possess this level of authority.
It is worth noting that no business can force people to use cryptocurrencies such as Bitcoin, Ether, or even Ripple’s XRP. Despite the emergence of CBDCs in recent years, it is concerning to witness two distinct governments resorting to force to drive adoption. As a general rule, central bankers and government officials should recognize that if something requires force, it may not be a viable idea. This rule applies to CBDCs as well.
Nicholas Anthony, a policy analyst at the Cato Institute’s Center for Monetary and Financial Alternatives, suggests that CBDCs should not be forced upon the public. The views expressed in this article are his own and should not be considered legal or investment advice.