Regulator releases second round of consultation on draft bills
NASSAU, BAHAMAS – The Central Bank of The Bahamas is moving to amend its governing laws to establish digital currency or electronic money as legal tender in The Bahamas.
The proposal was outlined in the regulator’s second round of consultation on the draft Central Bank of The Bahamas Bill 2019, the draft Bank and Trust Companies Regulation Bill, 2019, the Protection of Depositors Act 1999 and the Protection of Depositors Byelaws, 1999.
“Clauses 8 and 12 of the Bill seek to establish that the currency of The Bahamas may include electronic money issued by the Central Bank and that electronic money (digital currency) issued by the Central Bank is legal tender in The Bahamas,” the consultation document read.
“Clause 14 will make it an offence for a person to counterfeit digital currency or to reproduce digital currency without the Central Bank’s permission. A new clause 14A will authorize the Central Bank to make regulations for the purpose of prescribing the framework for the issue of digital currency.”
NZIA Ltd has been selected as the preferred technology solutions provider for the digital Bahamian dollar’s creation and roll-out. The initiative has been dubbed project Sand Dollar and a “pilot project” is slated for Exuma.
The digital Bahamian dollar is a key component in the Central Bank’s strategy to boost financial inclusion and access to essential banking services, especially for businesses and residents in remote Family Island communities.
“Electronic money issued by the Central Bank as legal tender in The Bahamas at its face value for the payment of any amount,” it continued.
“The Central Bank may simultaneously issue notes and coins and electronic money as legal tender in The Bahamas or may issue electronic money in the place of notes and coins,” the regulator proposed.
“No person shall, without the prior consent of the Central Bank, make, design, engrave, print, reproduce, use, issue, or publish any article or thing resembling or having a likeness to a note or coin or any electronic money issued by the Central Bank as to be likely to be confused with or mistaken for such note or coin or electronic money.
“The Bank shall require a person to withdraw from circulation any note or coin or electronic money which the Bank or the person knows or suspects has been counterfeited or altered. The Central Bank shall make regulations for the purpose of prescribing the framework under which electronic money may be held or used by the public in keeping with best international practices for the development and functioning of the payments system.”
The regulator began its first round of consultations on the aforementioned bills in June 2018.
“In January 2019, the International Monetary Fund conducted a review of The Bahamas’ financial services sector and assessed the legal and regulatory framework of the sector against international standards under their Financial Sector Assessment Program (FSAP),” the Central Bank stated.
“The IMF Mission reviewed the draft Bills and Byelaws circulated during the First Round Public Consultation and made a number of recommendations with a view to enhancing the drafts. After considering the IMF’s recommendations, the Central Bank is proposing further amendments to the proposed financial crisis management framework.
“Given the extent of the amendments sought in regards to the financial crisis management framework, the Central Bank will recommend that the Government repeal and replace the Banks and Trust Companies Regulation Act, 2000,” the bank added.
The regulator noted several other proposed amendments, unrelated to the financial crisis management framework, which seek to: curtail the amount of funds which it may lend to the government; authorize the Central Bank to issue digital currency as legal tender; and allow the Central Bank to provide banking services to certain non-bank financial institutions, such as credit unions.
While credit unions have the Bahamian dollar savings of their members, those savings are not covered under the existing DIC scheme. Once a licensed banking institution has Bahamian dollar deposits, membership in the DIC is compulsory. Only Bahamian dollar bank accounts up to $50,000 are covered by the Deposit Insurance Corporation.
The DIC was created in 1999 following the collapse of Gulf Union Bank (Bahamas). It is viewed as another element in ensuring financial industry stability by minimizing or eliminating the risk of loss of savings of small Bahamian depositors in the event a bank fails.