What is it about the island archipelagos and emerging economies and their experiments with Central Bank Digital Currencies (CBDCs)? What makes them take the plunge into risky waters that augur dire consequences if the rollouts go awry? There appear to be several reasons for this phenomenon.
One of them is the lack of quality of existing legacy infrastructure, another is the cost: digital transformation is especially asymmetric, huge benefits for a relatively small investment. Added to this, is the fact that the desire for change is driven from the top, usually just a few people have to be convinced for radical ideas to be implemented. Of course, in a small country the scale of the project, including the participants to be on-boarded are manageable. Definitely this scale helps nationwide projects to be launched with relative ease. In contrast, such an project would require quite a bit of work for a major world currency. Except for Peoples Bank of China who has strategic ambitions, no major monetary authority is contemplating productionizing CBDC in the next few quarters.
The sand dollar project from the Bahamas was one of the first in the world. The Bakong, a CBDC from Cambodia is already in production. The SOV project created an algorithmic currency that is legal tender in the Marshall Islands. Bahamas and Marshall Islands were in thrall to the US Dollar. Being dependent on exogenous money is a sure-fire way to perdition, as the money supply cannot be controlled by the sovereign nation.
The examples quoted above fall in a broad spectrum of CBDCs. Most of them involve a two-tier system with the monetary authority issuing CBDCs and commercial and retail banks distributing them. Tracking is through some sort of shared infrastructure so as to create a freely exchangeable currency.
