Data Currency: A New Frontier

Updated Jan 5, 2024

Introduction

Currency forms vary across cultures, becoming a medium of exchange once socially accepted.

Island Currency

A baffling ancient currency is the Rai Stone of Micronesia, larger than humans, with some stones measuring up to 3.6 meters wide and others as small as 7 centimeters. The island doesn't naturally produce the Rai Stone’s primary material, limestone. The high production cost and the unique story behind each stone, traditionally passed down orally, contribute to its high value. Historically, islanders used an older currency, shells, for trading Rai Stones: 1 RAI = 50 YAR (shells).

With the arrival of European traders in the late 19th century, metal tools increased the efficiency of stone mining and carving. Rai Stones continued to be treasured gifts among islanders.

Central Bank Digital Currency (CBDC)

Stone currency is obsolete, but various startup electronic coins, though not widely used as payment tools, still attract numerous investors. Central banks are exploring the digitization of liquid currency (CBDC), often met with indifference from the public and businesses. According to the International Monetary Fund, as of November 20, 2023, only three countries have officially launched CBDCs, with over 100 others in the exploratory phase. Leading this exploration are Brazil, China, the Eurozone, India, and the UK. CBDCs function as "units of account, store of value, and media of exchange," just like physical currencies.

·       Bahamas Case Study

The Bahamas was the first country to issue a CBDC, the Sand Dollar. Despite its low acceptance among the public and businesses, the Sand Dollar comprises 10% of the country's total currency in circulation. The country has 100,000 digital wallets and 1,500 businesses accepting CBDCs. From 2023 to 2024, the government plans to distribute one million Sand Dollars to encourage CBDC usage.

·       Jamaica Case Study

Jamaica's CBDC is stored in digital wallets provided by banks or authorized payment service providers. It's interest-free and can be exchanged 1:1 with legal tender. The Bank of Jamaica guarantees the transfer of funds to another wallet or bank account if a wallet provider fails to honor a payment.

·       Nigeria Case Study

Nigeria's eNaira is stored in eNaira wallets, with different types offering various credit and withdrawal limits. The Central Bank can adjust these limits: on December 7, 2022, the daily withdrawal limit was reduced from 150,000 to 20,000 eNaira (USD 44.97), with a weekly limit of 100,000 for personal accounts and 500,000 for business accounts, charging a 5-10% fee for exceeding limits.

Fintech innovation is the trend, with payment being a major area. Corporate leaders find it increasingly easy to access data for in-depth understanding and analysis. The International Monetary Fund[1] has developed several guides to assist central banks in exploring digital currencies and advancing fintech.

·       Exploring Central Bank Digital Currency

·       Digital Currency Product Development

·       Impact of Digital Currencies on Monetary Policy Transmission

·       Implementing Capital Flow Management with CBDC

·       Promoting Financial Inclusion with Digital Currency

[1] Central Bank Digital Currency Development Enters the Next Phase (imf.org)