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A Bank of Jamaica (BOJ) staff paper reveals that Central Bank Digital Currencies (CBDC) like JAM-DEX aren’t just digital cash – they’re a powerful new tool to assist in controlling inflation and boosting the economy, but only if designed correctly.
The research shows these digital currencies could give central banks unprecedented control over monetary policy, including the ability to implement negative interest rates during economic crises. BOJ working papers reflect authors’ views and calculations, not institutional policy.
“CBDCs allow for the implementation of negative interest rate policies, potentially enhancing policy transmission below the zero lower bound,” BOJ economist Dr André Murray wrote, highlighting their potential.
The paper, Imitation Game: The Rise of Central Bank Digital Currencies, highlights how CBDCs can reshape monetary policy through what the author describes as the “CBDC valuation/remuneration channel”.
Murray works in the Research and Economic Programming Division at the BOJ. The paper never explicitly used Jamaica as a case study but rather looked at digital currencies as a tool.
“The research is aimed at examining the implications of CBDC design choices on consumer acceptance and the monetary transmission mechanism,” Dr Murray told the Financial Gleaner.
An insight from Murray’s paper is that CBDCs and physical cash may not maintain perfect parity in value. The paper noted: “This valuation differential may primarily emanate from the diverse pricing strategies adopted by goods producers for physical and digital currency payments.” In practice, this means merchants might offer discounts for CBDC payments, due to lower transaction costs, or surcharges for cash—creating a complex monetary dynamic that central banks must monitor.
However, the paper warns that features like privacy settings, interest rates, and accessibility must be carefully balanced. Get these elements wrong, and the currency could fail to gain traction or even disrupt financial stability.
“As central banks are in the experimental phase of piloting CBDC, these findings suggest caution in transitioning from pilot to full deployment, considering potential shocks arising from disparities in underlying technologies and their effects on preferences,” stated the working paper. “While providing valuable insights, the model abstracts from direct implications of the ‘CBDC remuneration – value channel’ on inflation and commercial bank financial intermediation.”
The working paper includes a table showing that as of January 2023, a number of territories had launched or piloted 17 CBDC projects. France is piloting five projects, three by itself and others with Tunisia and Singapore. Since around 2020, the US has slowly explored the possibilities of a digital dollar. In February however US Federal Reserve chair Jerome Powell said that the Fed would never launch a digital dollar under his watch.
Jamaica’s JAM-DEX stands out as one of only a few fully operational retail CBDCs, alongside the Bahamas’ Sand Dollar and Nigeria’s e-Naira. Most other projects remain in testing phases, with China’s e-CNY being the largest-scale pilot. This puts Jamaica in a small group actively shaping the future of digital currency.
Launched in 2022, JAM-DEX represents a fundamental shift from existing electronic money systems. The public however often misunderstands the distinction between electronic money on a debit card and digital currency. While electronic money depends on private banks, JAM-DEX operates independently, potentially offering stronger consumer protection and financial inclusion benefits.
The paper indicates that unlike regular digital bank balances or mobile money, JAM-DEX is direct central bank liability – meaning it carries no credit risk, just like physical cash. The working paper explains: “CBDCs exist solely in digital form, representing a financial liability accurately recorded on the central bank’s balance sheet”.
English (US) ·