- B Vrettos and M Bacina
Mastercard, Visa and Bahama's CBDC
Updated: Feb 23, 2021
Digital currencies are entering to the Mastercard network and will soon be available globally to card holders. Mastercard recently announced their support of digital currencies, quickly following Visa's move to recognise the value of digital currencies in payments. These two announcements bring the two biggest payment providers closer to digital currency integration in the daily lives of millions.
Mastercard's justification is customer centric: it's about offering users more choice. Raj Dhamodharan, Executive Vice President, Digital Asset & Blockchain Products & Partnerships said:
We are here to enable customers, merchants and businesses to move digital value — traditional or crypto — however they want. It should be your choice, it’s your money.
Dhamodharan identified four key features that Mastercard looked for in the digital currencies they sought to support:
A keen focus on consumer protections (including privacy and security of customers information);
Strict AML/CTF compliance protocols;
Compliance with local laws and regulations in the areas in which they are used; and
Digital currencies with properties that encourage spending rather than investment/hodling.
Mastercard has collaborated with Wirex and Bitpay previously to create 'crypto cards' so that individuals could transact using their digital currencies. However, these cards did not allow digital currencies to move through the Mastercard network, companies would convert the digital currencies into fiat currencies which funds then moved through the Mastercard network. Now, Mastercard proposes to support digital currencies directly within their network.
The announcement also lends key support to central bank digital currencies with a collaboration between Mastercard and Island Pay to launch "the world's first central bank digital currency linked card". The Central Bank of the Bahamas was an early mover in issuing their central bank digital currency which has also claimed to be the world's first retail CBDC. Users will be able to instantly convert their non-CBDC digital currency to a stable "Sand Dollar" (A Bahamian dollar) to pay for goods and services through the Mastercard network, being any of the 700(!) islands which make up the Bahamas, and critically also in the global Mastercard network.
Bahamas Central Bank Governor, John Rolle stated that:
The Central Bank of The Bahamas will continue to encourage fintech developments that tie into the Sand Dollar infrastructure, while allowing us to satisfy best global practices for regulation of the space.
As digital currencies enter payment provider's networks the ease of customer adoption will only increase. This is a particularly crucial use case to follow, given Mastercard intends to allow payments using the Sand Dollar outside of the Bahamas itself.
There is a very real prospect that a CBDC which gains enough adoption globally could start to become a de facto standard, particularly in countries where there are concerns around the reliability of the local reserve currency, such as islands using US dollars.
This will also likely place pressure on other countries to investigate and move towards developing their own CBDCs not just as an innovative step to improve payments, but to protect their own monetary sovereignty.
As always, convenience is king, and citizens of a country may have no qualms using a foreign currency CBDC as part of their daily lives if it is convenient and more reliable in value than a local currency.