A lthough Bank of Jamaica, BOJ, minted $230 million of its new digital currency earlier this month as part of a pilot that runs to year end, the sole approved wallet provider so far, National Commercial Bank Jamaica, NCB, is not expected to receive its allocation of the central bank digital currency before next month, with a gradual roll-out thereafter planned by the country’s largest commercial bank.
Natalie Haynes, BOJ deputy governor for banking and currency operations and financial markets, said the commercial bank’s roll-out of the currency is expected to start with accounts for its staff, in response to Financial Gleaner questions at the central bank’s quarterly monetary policy press conference last Friday.
“NCB’s plan in terms of roll-out to customers is targeting first what they call friends and family – staff and their families – then they would move to other NCB account holders prior to moving to non-NCB account holders,” Haynes said of the retailing of the first set of the central bank-backed digital currency, or CBDC.
NCB’s chief information officer Ramon Lewis was not available to respond to requests for further details on the bank’s roll-out plans.
Haynes said the central bank would be able to comment on other applications and the e-currency take-up by the public in a few months, after NCB’s pilot deployment of the new payment system gets under way.
Meanwhile, the BOJ deputy governor pointed out that there has been no delay in the implementation of the digital currency pilot, which commenced in June and has been proceeding according to schedule, including the minting of the CBDC earlier in August.
“The first step was to get the interconnectivity between BOJ and the wallet provider,” she noted, indicating that this has been done.
The BOJ has also made clear that the CBDC is not expected to impact money supply or have any effect on inflation.
“Because CBDC will be a direct substitute for physical cash, we don’t see any great impact initially on inflation. It will just be that pile of cash in circulation being distributed between physical cash and CBDC,” Haynes explained.
Reporting on the state of deposit-taking institutions, DTIs, BOJ Governor Richard Byles said their balance sheets continue to indicate that DTIs are growing, properly capitalised, and are in compliance with prudent liquidity standards.
“Although the pace of loan growth has slowed due the moderating impact of the pandemic, it continues to be positive. The stock of private-sector loans and advances recorded year-on-year growth of 8.4 per cent at May 2021, compared to growth of 13.4 per cent a year earlier. At the same time, non-performing loans remain well below our threshold for concern and are fully provided for by the system,” said Byles.
Asked about the likely impact of the BOJ’s planned rate increase on the availability of credit needed by businesses, Byles said while credit would be more expensive for businesses, the eventual impact would depend significantly on the level of the rate hike the monetary policy committee, MPC, of the central bank will recommend at its September meeting.
“Making a decision about raising interest rates is never an easy one, perhaps more so in our economy, because we want to stimulate growth, and raising interest rates doesn’t do that. But we have to protect Jamaicans against inflation. The one thing that creates more poverty than anything else is inflation,” Byles said regarding the rationale for the MPC signalling its plan to raise rates.
“What higher interest rates will do, conceptually, is make saving a little bit more attractive, compared to consumption, and that will have the effect of compressing demand for goods and services somewhat and have an effect of restraining prices. It also will incentivise people to stay in Jamaican currency rather than switching out and putting pressure on the exchange rate. So, it does have in concept those dual benefits, even as we recognise that it will have a constraining impact on business expansion,” according to the BOJ governor.
Commenting on the foreign exchange market, Byles noted that the 8.7 per cent depreciation in the value of the Jamaican dollar to August 16 was an improvement compared to the 12 per cent depreciation of a year earlier, even amid stronger demand for US dollars so far this year.
“This movement is still too high for comfort,” Byles said, noting that foreign currency flows have remained strong and available to meet daily demand, which, excluding BOJ purchases, averaged US$33.2 million between January 1 and August 16, compared to US$26.6 million for the similar period last year. The BOJ is said to have purchased US$1.1 billion from the market to pay Government of Jamaica debt and some energy imports.
The country’s gross foreign reserves, the BOJ reported, are at US$4.2 billion and equivalent to 128 per cent of the level considered by the central bank to be adequate. This is expected to be boosted in September by US$520 million in special drawing rights allocation to Jamaica by the International Monetary Fund.
“By any standard, Jamaica’s foreign currency liquidity position will be more than sufficient to support the economy, if needed, in the foreseeable future,” the BOJ governor said.