The Future of Money Is Digital

What Is Digital Currency, and How Can It Benefit Businesses?

Disruptive technological innovations of any form are usually met with some degree of hesitancy and scrutiny. Though the public may ultimately embrace the changes, they are first viewed with apprehension. Digital currency is a prime example of such innovation.

Its predecessors, including credit cards, automated tellers and banking machines, and even online banking platforms were met with similar skepticism as they were being integrated into the financial norms of Jamaican society. Now that the Bank of Jamaica (BOJ) is introducing its Central Bank Digital Currency (CBDC), local businesses have the unique opportunity to be among the early adopters of this technology and can position themselves to reap the benefits.

As money has evolved from the barter system in early societies to the non-physical digital currencies of today, the greatest proponents of these changes have been the need for increased convenience, cheaper transactions, safety, and efficiency. These, along with other factors such as the opportunity for capital gains, have led to the rise of the popular cryptocurrency, Bitcoin.

Since 2009, Bitcoin has been the single digital currency that has held public attention more than any other, mainly due to its significant rise in value which has positioned it as the premier digital asset. Considering the fact that Bitcoin traded at a price of $13.40 USD at the beginning of 2013 to its all-time high of $64,863.10 USD on April 14, 2021, this would somewhat justify its position at the top of the digital currency food chain. For some time, Bitcoin felt like a foreign concept that would have no immediate or significant impact on the way we do business in Jamaica. However, in May 2020 that reality changed.

The BOJ announced its preparation for Jamaica’s CBDC in March 2021, noting that it took the decision a little over a year earlier in hopes of leading Jamaica into the digital future of money that is fast becoming an offering of central banks globally (which is primarily due to the significant rise and adoption of cryptocurrency by major investment firms and fintech companies). Though many wonder whether the country’s financial system is ready for this new legal tender, the BOJ reassured that the CBDC would first endure a thorough pilot in its Fintech Regulatory Sandbox between May and December 2021.

While large, medium and small business owners alike await clarity regarding the potential implications for their existing operations once the CBDC is finalized and rolled out officially, here are the fundamentals of Digital Currency and what businesses need to consider as they prepare their own operations for the digital future of money.

The Fundamentals - What is Digital Currency?

Digital Currency (or digital money) is a virtual asset that is used as a means of payment. In other words, it is a payment that exists exclusively in electronic form. It is accounted for and transferred using information systems. It is also the most recent iteration in the constant evolution of money. Cryptocurrencies and CBDCs are forms of Digital Currency and should be classified under this category.

Cryptocurrencies, like Bitcoin, are decentralized (lacking any main controller, owner, or authority), supported by a blockchain (which is a distributed ledger technology) and is unregulated. As such, their value fluctuations are more volatile, it’s difficult to tie transactions to any specific individual or entity and they have inherent risks primarily due to its ability to facilitate illicit activities such as ransomware payments and money laundering.

Central Bank Digital Currencies (CBDCs), as the name indicates, are governed by a central authority that decides when and how much of it is minted, to whom it is issued, and verifies transactions in which it is used. A central bank can ensure measures such as stringent KYC requirements that protect commercial banks and other deposit-taking institutions (DTIs), lessening the chances of fraud. These measures also protect customers from theft and ensure that personal information attached to CBDC accounts is kept securely.

The CBDC minted by the BOJ is legal tender in Jamaica and as such will be integrated into the country’s financial infrastructure and legislation. This means goods and services will be able to be purchased using the CBDC, which is interchangeable 1 to 1 with the Jamaican Dollar.

What does this mean for businesses?

Perhaps the major anticipated benefit of the CBDC is increased efficiency. Digital money means transactions will be able to be processed faster and more conveniently. It remains to be seen what kind of fees and processes banks will put in place around CBDC accounts and we’ll learn more on the intricacies of the BOJ’s hybrid model for issuing CBDC as information is released. But for certain, with CBDC we will see the continued rise of automation, which will have more benefits than disadvantages as it will ultimately create more ease in the management of money compared to physical cash.

How can businesses prepare to embrace CBDC?

For businesses seeking to ready themselves to be able to conduct transactions using CBDC, the most immediate concern is that of data protection and an up-to-date IT infrastructure.

This will see businesses needing to enlist the help of experts, such as the team at Symptai, to conduct the necessary risk assessments to identify where a business may be vulnerable to cyberattacks, including theft, fraud, or unauthorized access. Business owners and individuals alike should understand that with digital money, the heightened focus must be on your intangible security - while no one can hold up your business and steal CBDC from the till, they will try to come in silently through weak points in your IT infrastructure. As such, it is imperative that we are aware of where our control weaknesses are to facilitate effective monitoring and remediation.

Where anti-money laundering (AML) is concerned, banks and deposit-taking institutions (DTIs) will place additional focus on the due diligence and controls needed to spot any suspicious activity or irregularities in transactional data. The large amount of data that will be available for analysis can provide critical insight for business intelligence and if utilized the right way, might lead to an evolution of the current AML processes, making it more efficient and effective.

Taking these steps will also lead to an increase in overall process efficiency. As businesses bolster and streamline their automation, this can lead to clearly documented processes and improve day-to-day operations.

While these considerations may initially seem daunting, we at Symptai Consulting have successfully led clients through these steps. We are a trusted provider of solutions and services to guide companies on their journey to digital maturity, as well as the only data privacy training provider in the English-speaking Caribbean to be certified by the International Association of Privacy Professionals (IAPP). If your company is ready to mature into the era of digital currency, contact one of our trained specialists to discuss the best solution for your business as you move towards embracing the future of money.

The widespread adoption of Digital Currency is coming, both in Jamaica and globally. These developments have been expedited by the COVID-19 pandemic which has changed the way business is conducted in virtually every industry. Learn more about how the team at Symptai can help you and your organization by contacting us at info@symptai.com.