DXCD, The Eastern Caribbean Central Bank Money Is Being Readied For Production – Forbes

What is it about the island archipelagos and emerging economies and their experiments with Central Bank Digital Currencies (CBDCs)? What makes them take the plunge into risky waters that augur dire consequences if the rollouts go awry? There appear to be several reasons for this phenomenon. One of them is the lack of quality of existing legacy infrastructure, another is the cost: digital transformation is especially asymmetric, huge benefits for a relatively small investment. Added to this, is the fact that the desire for change is driven from the top, usually just a few people have to be convinced for radical ideas to be implemented. Of course, in a small country the scale of the project, including the participants to be on-boarded are manageable. Definitely this scale helps nationwide projects to be launched with relative ease. In contrast, such an project would require quite a bit of work for a major world currency. Except for Peoples Bank of China who has strategic ambitions, no major monetary authority is contemplating productionizing CBDC in the next few quarters.

The sand dollar project from the Bahamas was one of the first in the world. The Bakong, a CBDC from Cambodia is already in production. The SOV project created an algorithmic currency that is legal tender in the Marshall Islands. Bahamas and Marshall Islands were in thrall to the US Dollar. Being dependent on exogenous money is a sure-fire way to perdition, as the money supply cannot be controlled by the sovereign nation. The examples quoted above fall in a broad spectrum of CBDCs. Most of them involve a two-tier system with the monetary authority issuing CBDCs and commercial and retail banks distributing them. Tracking is through some sort of shared infrastructure so as to create a freely exchangeable currency.

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The Eastern Caribbean Central Bank (ECCB), established in 1983, is the Monetary Authority for a group of eight island economies- Anguilla, Antigua and Barbuda, Commonwealth of Dominica, Grenada, Montserrat, St Kitts and Nevis, Saint Lucia, and St Vincent and the Grenadines. Names that evoke the sun, sand, beaches and happy people. However, reality of the ground is quite different. Tourists come during the high season and barely scratch the surface of the reality of life on the islands. Hurricanes, wipe out the infrastructure frequently, quite a percentage of people live on very little.

In a scattered set of island economies distributed over many square miles of ocean, distribution and management of cash becomes an enormous challenge. People with no bank accounts and with no credit or debit cards have to rely on cash for payment. The main aim of the ECCB CBDC is to be a retail payment system, for people who do not have credit cards, for e-commerce and merchant payments at low costs, remittances to people at low costs. Just downloading a app on the phone is enough to allow custodial and non-custodial wallets. Custodial wallets are setup by commercial banks for regular account holders who have completed KYC/AML and other “normal” practices. non-custodial wallets are for people without regular bank accounts, provided by key government agencies with minimal asks. Parallel means of payment use smart cards which employ NFC (Near Field Communications) to interact with merchant terminals, a smart phone is not necessary to use DXCD. NFC is familiar to many from its use in tap and pay systems.

Bitt is the main solution provider working with ECCB on DXCD. Bitt is financed by Medici Ventures, spun off from Overstock and T-Zero created by the now ex-CEO of Overstock, the charismatic polymath innovator Patrick Byrne. Many of the top executives of Bitt are from Medici Ventures or ex-Overstock employees.

Stephen Phillips, VP product from Bitt presented the architecture of the system at the Hyperledger Capital Markets Special interest Group on January 27. The architecture is divided into two parts the Commerce layer and the Numa Layer, The Numa layer contains the ledger and there is no direct connectivity for the participants to that layer. All interactions with the Numa layer or the ledger layer happens through the API or application program interface mediated through security, regulatory reporting and policy settings. The commerce layer has a private layer for central banks and for Financial Institutions. Familiar techniques such as Multi-Factor Authentication protect access. Identity management and the storage of user data is left to the banks. The Financial Institution systems are decentralized and re-use existing legacy infrastructure integrated with the commerce layer.

The public API layer allows e-commerce, merchants, wallets and third part apps to connect. Phillips made it clear that this architecture developed for ECCB CBDC is reusable and is in fact being used to develop a CBDC for Belize. The API layer loosely-couples the specific ledger being used, in the pilot phase it is Hyperledger Fabric 1.2. This allows for a relatively agnostic solution; as long as the API calls in Numa can be translated into the underlying ledger, the ledger frame work can be replaced. This is very typical of a loosely coupled architecture that allows some amount of flexibility.

Such a loose coupling is also a gateway into multi-currency and multi-asset networks, and the creation of true digital markets. The next steps are also towards a true bearer instrument much like cash, this is more difficult to achieve technically than previously thought, a token based system with bearer proofs rather than identities may need more sophisticated cryptography such as Zero Knowledge Proofs and Homomorphic encryption. These are future directions that CBDC could take.

On the monetary policy, themes such as demurrage or a negative interest rate a la Silvio Gessell to prevent hoarding of money and to get people to spend money to power the economy in times of stress are also possible with CBDCs.

Along with the technical complexity of the system, to launch such a pilot and a production environment requires a great ground game and Phillips seems like the man to lead it. Engagement with, education of and listening to local merchants and select users have to figure heavily in the pilot rollout. The success of such a pilot needs a extensive local knowledge and patience as many participants’ concerns have to be addressed. The next stage will be a production rollout happening by the end of March. Likely it will start small and gather momentum as adoption picks up.



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