The evolution of currency in The Bahamas

When it comes to currency, an innovative jurisdiction requires innovative legislation, says Alexander Christie and Vanessa Hall of McKinney, Bancroft & Hughes, who explain how The Bahamas implemented a Blockchain-based digital currency.

Evolve or die. The world is swiftly changing and the inclusion and use of digital currencies is almost essential to keeping up with the financial times. Central Banks around the world are experimenting with various forms of digital currencies and The Bahamas is no exception.

The Bahamas was the first country to implement a government-backed blockchain-based Central Bank Digital Currency (CBDC). A CBDC is "a digital form of central bank money, which is legal tender created and backed by a central bank that represents a claim against the central bank and not against a commercial bank or a Payment Service Provider…"¹.

Unlike other digital currencies, CBDCs are regulated and centralised by the Central Bank.

The Central Bank of the Bahamas 2020 Act (the Central Bank Act) made the innovative decision to include inter alia "electronic money" in its definition of currency. Legislators went a step even further and implemented the Bahamian Dollar Digital Currency 2021 Regulations (BDDC Regulations). The BDDC Regulations define BDDC as an electronic version of the Bahamian Dollar issued by the Central Bank pursuant to the authority conferred upon it by the Central Bank Act 2020, fully backed by reserves held by the Central Bank and which represents a direct claim against the Central Bank².  

According to the BDDC Regulations, a Bahamian Dollar Digital Currency wallet means a digital wallet issued by a wallet provider that holds BDDC. The BDDC Regulations provide inter alia for the regulation of wallet services offered by wallet providers who must be registered under the Central Bank Act. Not only does the BDDC Regulations require a clear but detailed application process, it also provides safeguards for the protection of the currency in those wallets by outlining conditions by which wallet providers must satisfy before registering as a wallet provider or must satisfy in order to continue to provide such service.

In addition to the regulatory provisions already encompassed in the BDDC Regulations, The Central Bank is empowered, as and in such manner as it considers appropriate, the flexibility to give further regulatory protection where deemed fit. The Central Bank may issue and publish such codes, rules, guidelines, policy statements and practice notes for the imposition of rules and standards concerning the imposition of limits or restrictions on wallet balances and transaction values for different categories of wallet holders and otherwise providing guidance and in:

A)    Furtherance of its regulatory objectives; 
B)    Relation to any matter relating to any of the functions of the Central Bank under any of the provisions of these Regulations; and 
C)    Relation to the operation of any of the provisions of these Regulations⁶.

Furthermore, the Central Bank may issue written directions, generally or specifically, to any wallet provider in any circumstance where the Central Bank is of the view that:

(i) it is necessary or expedient for ensuring the integrity or proper management of BDDC and the technology platform; (ii) it is necessary or expedient for the effective administration of these Regulations; (iii) it is of public interest; (iv) a person is engaged in, or is about to engage in, any unsafe, unsound or unfair practice with respect to BDDC; or (v) a person has contravened or failed to comply with, or is likely to contravene or fail to comply with, the provisions of the BDDC Regulations or any codes, rules, guidelines, policy statements and practice notes given under the regulation or other legislation⁷.

The Bahamas appreciates the fast maturing and evolving industry and was diligent in structuring its regulations not only to ensure high standards of regulatory protection for today but also a quickly coming tomorrow that may not wait for legislative machinery to adjust.

The amendment to the Central Bank Act and the implementation of the BDDC Regulations lays the framework and foundation for the Bahamian CBDC called Sand Dollar. Sand Dollar is the digital form of the Bahamian dollar issued by the Central Bank of The Bahamas⁸.  The Sand Dollar is issued through authorised financial institutions and the currency is kept in a user's digital wallet via mobile phone app or by using a physical card.

Ultimately, a CBDC, or in The Bahamas the referenced BDDC, is an extension of paper money also known as fiat currency. Fiat currency is legal tender issued by the Central Bank that we know as (bills) notes and coins. The use of fiat currency is still the most popular method of payment. Some may argue that it is the most secure exchange and it is certainly the fastest! Payment via credit and debits cards, while still considered a digital payment, is still fiat currency moved by respective banks. It is not as secure as a fiat currency transaction, due to the threat of accounts linked to such cards being hacked or by a card being compromised, but it is certainly efficient.

Both physical fiat currency and digital fiat currency have their pros and cons and it appears as if the objective of the CBDC is to merge those pros and cons. The merger births secure and quick payments. 

Why are central banks going down this path? Traditionally, Central Banks have been participating in two kinds of payment transactions - fiat currency and intermediary bank payments. Technology is progressing in both of those areas and resulting in the implementation of other (decentralised) digital currencies. There are arguments that physical fiat currency is on its way out; however, the Central Bank has advised it has no plans to eliminate cash⁹. 

The exploration of CBDCs is becoming more popular in emerging markets. The motivation has been financial inclusion and decreasing costs of handling cash. This school of thought is in line with Sand Dollar's objective which is to "[a]chieve greater financial inclusion, cost-effectiveness, and provide greater access to financial services across all of The Bahamas¹⁰." 

So why is this even remotely beneficial to Sand Dollar holders? Sand Dollar allows for an enhanced payment process, reduced transaction costs and it also boasts better security by the use of multi factor authentication, wallet security and cyber security assessment¹¹.

The evolution of currency begun before the Sand Dollar, but this CBDC ensures the future of Central Bank issued centralised currency. Kristalina Georgieva, Managing Director of the IMF, sums up the objective of CBDCs perfectly: "The history of money is entering a new chapter. Countries are seeking to preserve key aspects of their traditional monetary and financial systems, while experimenting with new digital forms of money¹². The Bahamas took a bold and innovative first leap in accomplishing what no jurisdiction has done before and have well equipped herself for the quick approaching tomorrow's brave new world.

2 Bahamian Dollar Digital Currency Regulations, 2021, section 2
3 Bahamian Dollar Digital Currency Regulations, 2021, section 8
4 Bahamian Dollar Digital Currency Regulations, 2021, s. 10
5 Central Bank Act, 2020 s. 13
6 Central Bank Act, 2020 s. 21
7 Central Bank Act, 2020 s. 22
12 Georgieva, Kristalina. The Future of Money: Gearing up for Central Bank Digital Currency.

Alexander Christie is a Partner at MBH. You can reach him at 1-242-322-4195 or

Vanessa Hall is an Associate at MBH. She can be reached at 1-242-322-4195 or at

The full Bahamas Special Report 2022 ezine with a comprehensive list of features and videos is available to view/read here.

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