The Caribbean is pioneering CBDCs with mixed results amid banking difficulties

The Caribbean region is in a tough situation for banking. The 35 nations comprising the region face challenges common to many tiny economies, such as dollarization and dependence on foreign trade and remittances. In addition, the increasingly common banking practice called de-risking is taking a heavy toll. So, it is probably no coincidence that the region is also at the forefront of digital currency adoption. 

Carmelle Cadet, the founder and CEO of banking solutions company Emtech, is a native of Haiti who has experience working with central banks in Haiti and Ghana. Her company is also a member of the new Digital Dollar Project Technical Sandbox Program that is exploring aspects of a United States central bank digital currency (CBDC). Cadet spoke to Cointelegraph about her experiences in the Caribbean and the United States. She said rolling out functioning CBDCs in the region is “a long game.” It is easy to see why.

The risks of banking in the Caribbean

The Financial Action Task Force (FATF) lists countries that are under special monitoring for money laundering or other illegal activities. Although only four countries in the region were on the so-called gray list as of June, the list seems to cast a pall over the region as a whole. Because of it, extra due diligence efforts are required when large international banks provide services such as settlement to smaller local banks in those countries in a process called correspondent relationships. 

Additional due diligence drives up international banks’ costs of doing business. Banks often choose to sever ties with banks in gray-listed countries rather than pay the increased costs. That decision is referred to as de-risking. Some Caribbean countries have lost 50% of their correspondent relationships, with severe consequences for their economies and societies.

The United States House of Representatives Financial Services Committee held hearings titled “When Banks Leave: The Impacts of De-Risking on the Caribbean and Strategies for Ensuring Financial Access” on Sept. 14. Prime Minister of Barbados Mia Amor Mottley and Prime Minister of Trinidad and Tobago Keith Rowley attended the hearings.

#financialinclusion is possible: Modern #Regulatory Frameworks + Modern #Technology. Banks have moved away from the Caribbean and cost of payments is not going down. It feels like punishment indeed. Thank you for testifying in front of Congress on this topic! #bardados https://t.co/SjLpSw1aT8

— Carmelle Cadet…