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Digital transformation changing lives faster than anticipated

Accelerated by the pandemic, the digital future is coming at us faster than ever before, and maybe faster than we can imagine. There is a need to explore the possible consequences—the good, the bad, and the gray.

For millions, technology has been a lifeline, changing the way people work, learn, shop, and entertain themselves. In a year like no other, it has spurred game-changing digital shifts. Governments moved quickly, using mobile solutions to provide cash assistance; financial technology has helped the survival, and in some cases, growth of small- and medium-sized businesses; and the first national digital currency, in The Bahamas, provides a glimpse of the future of money.

“Never let a serious crisis go to waste”, innovators around the world are taking the saying seriously, responding to the disruption caused by the COVID-19 pandemic with creative digital solutions.

The initiatives highlighted are markedly diverse and some of these include: 1) the overnight transformation of Sri Lanka’s 125-year-old live tea auction; 2) the world’s first central bank digital currency in The Bahamas; and 3) the rapid pivot from a taxi-hailing app in Kampala, Uganda, to a thriving e-commerce platform.

All three share a common characteristic, an innovative, entrepreneurial spirit born of an urgent need. The Bahamas initiative responded to a need to extend financial services to residents of remote islands whose lack of access was exacerbated by extreme weather. In Sri Lanka, the tea industry—fundamental to the economy and employing millions—came to a sudden halt when COVID-19 prohibited the weekly tea auction from convening. And in Uganda, people’s ability to get food and medicine and earn an income was severely hampered by the pandemic lockdown.

While the ingredients for success vary in each country, there is one constant, there was an enabling environment for these initiatives to germinate and quickly become reality. Innovative, homegrown initiatives helped millions of underserved people to be financially included and have a better shot at prosperity.

Despite the promise of digital transformation, it can also drive unequal outcomes in education, opportunities, and access to health care and financial services. Automation has destroyed jobs, some permanently. The gulf between the digitally connected and the unconnected—across and within countries and between rural and urban areas—has amplified social and economic inequalities.

It is necessary to emphasize that the governments should play a regulatory role, with incentives for innovation toward ‘human-friendly’ technologies that produce good jobs. The policies should bring more people—particularly the poorest—into the financial system. The objective should be to make every country’s education system both more digital and more inclusive.

Clearly for such initiatives to succeed, countries must scale up investment in digital infrastructure, such as access to electricity, mobile and internet coverage, and digital ID.

Still, there are real difficult tasks that include addressing cyber threats to the financial system, balancing commercial interests with protection of privacy and data integrity and overcoming digital taxation, data bias and ethics, and the need for global technical cooperation.

The stark divergence in prospects across countries, regions and sectors demand policy actions on several fronts. There are views that the pandemic, along with climate change, will alter thinking about economics and the social contract. There are suggestions that policies that help identify and nurture young talent from poorer countries could advance the global knowledge frontier.

The Bahamas experience

In October 2020, The Bahamas leapfrogged into the digital vanguard with the launch of the world’s first central bank digital currency—the sand dollar. Pegged one-to-one to the Bahamian dollar and using a block chain-backed digital token, the new currency is available to people and businesses to buy and sell goods and services and send money to each other. Sand dollars are issued and regulated by The Bahamas’ central bank.

The Bahamas territory is spread out over 700 islands—making it unprofitable for commercial banks to have ATMs or physical branches on remote, sparsely populated islands. Extreme weather events make the cost of maintaining infrastructure even steeper. As a result, the most vulnerable often lack access to financial services.

The need to serve the unbanked and under-banked population, along with a drive to modernize the payment system, spurred the central bank’s introduction of the new digital currency.

“We didn’t start with the idea of a central bank digital currency,” says John Rolle, Governor of the Central Bank of The Bahamas. “We focused on eliminating as many obstacles as possible for persons having access to the equivalent of a deposit account or a mobile wallet account to conduct transactions.”

Following successful pilots the central bank began distributing sand dollars to Bahamian commercial banks, payment system providers, and money transfer operators. Funds are placed in clients’ digital wallets, which allow access to various amounts of money and transaction thresholds.

Anke Weber, IMF Mission Chief for The Bahamas, attributes the fast rollout and growing interest to the need created by 2019’s devastating Hurricane Dorian and the COVID-19 pandemic.

It is still early days, with only US$130,000 worth of sand dollars in circulation compared with US$500 million Bahamian dollars. Customers’ initial reaction has been positive.

Those who are using the sand dollar enjoy the ease, faster turnaround, and lower costs. Using the sand dollar doesn’t even require a bank account or a mobile phone, although that’s how most transactions take place.

And while it wasn’t designed with the pandemic in mind, users uniformly cite the safety of a cashless transaction as a key reason for adopting the digital currency. “What convinced me to go with this sand dollar is mainly because of COVID,” says Mikia Cooper, an attorney at law firm Twenty Twenty and Associates.

As countries around the world experiment with central bank digital currency, lessons from The Bahamas’ experience will no doubt be watched closely.

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