Exploring digital currency and E-payment in the Caribbean
*This post was initially carried by the Trinidad Express, Sept 29th
**While reference is made within this piece to a study and report, the opinions expressed are my own.
Figure 1: UN ECLAC 1st EGM: (Left to Right) ECLAC’s Deputy Director (Ag.) and Associate Information Management Officer. Dillon Alleyne and Robert Williams, respectively & consultant, Shiva Bissessar (courtesy UN ECLAC)
In November 2014 The UN Economic Commission for Latin America and the Caribbean (ECLAC) commenced a study entitled “Opportunities and risks associated with the advent of digital currency in the Caribbean”, where yours truly was selected as the consultant to perform the required research and write the final report. The study sought to introduce the Caribbean to the phenomenon of digital currency and explore the opportunities and risks which arise from application of this innovation within the Caribbean. The work was performed in the context of continued regional deficiencies in electronic payment infrastructure (e-commerce and mobile money) and the appearance of service providers seeking to provide solutions in response to these deficiencies including digital currency service providers.
The study brought together key stakeholders within the Caribbean involved in activities toward the development of better electronic payment infrastructure. These stakeholders included:
- E-commerce providers & software developers desirous of more responsive payment infrastructure
- Mobile wallet & digital currency service providers seeking entry in the Caribbean
- Central Bank Policy and Anti-Money Laundering (AML) senior representatives
- Government senior legal representative
- Finance academia representative
These parties were identified and invited to participate in two Expert Group Meetings (EGM). The 1st EGM was essential towards data collection of the views and positions of the aforementioned while the 2nd EGM was used to review a final draft of thereport. The summaries of these meetings remain the only public output of this study to date.
The study also served to conduct a formal survey of some of the region’s Central Banks as to their awareness on digital currency and mobile money in the evolving landscape of electronic payments. The study was intended to provide Caribbean authorities with enough information for them to begin the process of performing a balanced evaluation of opportunities and risks associated with digital currency in the Caribbean.
*As the study remains unpublished, there are limits as to what can be discussed, however some aspects as made public in the EGM reports are referenced.
The study uncovered evidence of longstanding deficiencies in electronic payment systems within the Caribbean which has forced e-commerce vendors to rely on workaround methods to receive payments. The deficiencies manifest as prohibitive charges and burdensome requirements placed on vendors to acquire local merchant accounts with the ability to receive credit card payment. This has forced certain vendors to take a path of least resistance and resort to external payment providers such as Paypal, rather than contend with the expensive red tape laden scenario as posed by local banks.
The study also uncovered instances of vendors seeking to provide mobile money and digital currency solutions, including remittance solutions, within certain Caribbean territories. However, given the innovativeness of the solutions these vendors were seeking to provide, their regulatory uncertainty and the largely risk averse commercial banking sector, such vendors have had difficulty in acquiring bank accounts to provide their services. Indeed, it is worth noting that a low return of completed survey instruments was experienced within the study, in seeking feedback from regional Central Banks.
If we were to compare the approach towards digital currency within the Caribbean against that of a first world capital of finance e.g. London, we would find that a predominantly unacquainted and conservative approach dominates the Caribbean mindset, with many in authority focusing on the weaknesses of digital currency. Contrast this with the approach taken by the UK’s HMRC in March 2015 where intentions towards standardisation in consumer protection and AML regulation of digital currency were announced while also allocating £10M towards further research. The contrast is illustrated below.
Figure 2: The Caribbean seems to be stuck focusing weaknesses of digital currency while global finance capitals are improving on weaknesses and exploiting opportunities. (Bissessar, 2014 & 2015)
Hence, if the full benefits of digital currency are to be achieved within the Caribbean we cannot continue to rely on traditional actors as noted in the 2nd EGM meeting notes (item #47).
“In discussion on the conclusion of the study, the consultant expressed the view that the current target audience for the study may need to be shifted away from central bankers. He noted that central bankers have demonstrated a reticence to officially comment on the process, as suggested by their lack of response to the survey instrument. He expressed the view that central banks as regulators tend towards deference on the concerns of international finance bodies, which invariably raises the level of risk aversion. This institutional environment does not augur well for the encouragement of technological innovation in the region. He suggested that perhaps if the focus of the study’s discussion shifted towards academics and the technology and innovation sector, more traction could be gained toward regional engagement with issues surrounding digital currencies, and the momentum could be built upon to encourage a more active role on the part of regulators. He also noted that it was not the role of the study to sell regulators on the benefits of these technologies, but rather to bring legitimacy to the debate around digital currencies and to encourage local and regional authorities to treat with the issue objectively, rather than with a sole focus on risk.”
Relevance of this Caribbean study
In February 2015 the Commonwealth held the Virtual Currency Round Table which was attended remotely by Mr. Robert Williams of ECLAC who articulated the objective evaluation of both opportunities and risks of digital currency which the ECLAC study was achieving within the Caribbean region. Also participating in this meeting was Jamaica’s Director of Legal Reform within the Ministry of Justice, Mr. Maurice Bailey who also actively participated in, and commended the efforts of, the study within the 2nd ECLAC EGM in April 2015. Subsequently, the Commonwealth Working Group on Virtual Currencies (CWGVC) released conclusions from their meeting in Aug 2015 as shown below:
The Group agreed that:
- Virtual currencies have a potential to benefit Member States and to drive development;
- The use of virtual currencies has benefits and risks;
- Awareness, education and funding for training for law enforcement, prosecutors, judges, regulatory authorities and the financial sector are needed;
- Member States should consider developing and improving the capacity of law enforcement especially in the areas of digital forensics and analytics;
- Member States should consider the applicability of their existing legal frameworks to virtual currencies and where appropriate they should consider adapting them or enacting new legislation to regulate virtual currencies;
- Legal frameworks should address risks and vulnerabilities, be technologically neutral and avoid stifling innovation;
- Member States are encouraged to implement the FATF Guidance for a Risk Based Approach to Virtual Currencies (June 2015);
- The Commonwealth Secretariat should create a digital repository of best practice and model regulations as part of an online community to assist Member States in developing policy; and
- Relevant technical terms should be clearly defined in the guidance to be made available to Member States.
The Group resolved upon the following outcomes (the ‘Outcomes’):
- to complete a report on the prevalence and impact of virtual currencies within one (1) month;
- to convene again in early 2016 to consider draft technical guidance for member states on virtual currencies; and
- to continue to raise awareness and develop capacity building on virtual currencies within the Commonwealth
Various aspects cited within the CWGVC conclusions are treated with in the ECLAC study including:
- Discussion of some possible distinct benefits to the Caribbean
- Discussion of anonymity (relevant to law enforcement, prosecutors, digital forensics etc.)
- Discussion of treatment options re: policy and regulatory development, FATF guidelines
Hence, this ECLAC study can contribute to the overall best practice, awareness and capacity building efforts as mandated within the CWGVC conclusions. The Caribbean therefore has the opportunity to be recognized as being early and taking a forward thinking and balanced approach towards getting ahead of the game with respect to this emerging financial innovation.