Dr. Justin Ram, Director of Economics with the Caribbean Development Bank (CDB), is advocating the implementation of a Caribbean Settlements Network (CSN) which will provide real time financial and trade data and help the region’s economic growth.
Speaking at the third annual Central Bank Meets Block Chain Conference in St. Michael Barbados, he said that the Caribbean is on its way to being one of the poorest regions in the world, but the use of digital currency could mitigate and turn around that looming fate.
In a presentation entitled “Caribbean Settlements Network: How a CSN and Digital Currencies can Facilitate Regional Trade”, Dr. Ram said the use of digital currency in a regional settlements system, would significantly reduce current growth and development gaps affecting all regional economies.
Citing conclusions from a CSN working group, he said, “A Caribbean Digital Settlement System can provide significant benefits to the overall economy,” noting that the benefits are free movement of capital, reduced transaction costs, faster and more convenient transfers.
The current reality facing national economies in the region, he observed was that while per capita production which has doubled in the last two decades, it is accompanied by growth which is uneven across the region and developmental challenges.
Intra-regional trade is critical to Caribbean development yet in 2018 only 12 per cent of exports valued at US $3.4 billion were traded within the region with the Caribbean economy expanding by only 2 per cent in 2018.
“A digital payments system will make it easier to make tax payments, including VAT.”Dr Justin Ram
Meanwhile, Ease of Doing Business rankings have deteriorated across the region. In 2009, the regional average for ease of doing business was 81 out of 181 countries. In 2019, the regional average is 126 out of 190 countries.
In terms of the macro-economy, Dr. Ram declared the Caribbean continues to record low economic growth, low commodity prices, high debt, low savings, declining reserves, poor sovereign debt ratings and loss of correspondent banking relationships; plus, the high cost of AML/CFT compliance.
Under productivity and competitiveness remain challenges for the region, the economist said. He pointed to the low rankings in the World Bank’s Ease of Doing Business index, large infrastructure gap, weak governance, inefficient and costly transportation links, high energy and electricity costs and nascent or underdeveloped regulation.
In the area of human development, Dr. Ram said the region was characterised by high poverty and unemployment particularly very high youth unemployment and poor education outcomes. Then there is the reality of high crime and citizen insecurity and limited social data available for designing and measuring effective strategies.
On the environmental front, he noted, there is high annual natural disaster costs, low insurance payouts, insufficient building codes and poor climate change adaptation tools.
Citing the work of a CSN working group in which the CDB is a participant, the economist said using a CSN and digital currency will benefit all trade participants in the region.
He used the example of “a Vincentian farmer exporting produce to Barbados with CSN can speed up trade payment” to make his point that using a digital currency will make it easier to track cash flows accurately.
A retailer in Barbados, he said, with a CSN may eliminate regulatory hurdles and time required to access foreign exchange to pay for regionally sourced imports.
In general, Dr. Ram said, a digital payments system will make it easier to make tax payments, including VAT.
He also stated, by way of example, that governments and regulators in Barbados and St. Vincent and the Grenadines by having their central banks employ CSN, can reduce local demand for foreign dollars and improve the efficacy of monetary policy tax authorities.
Under the network of a digital payments system, with customers making payments digitally, Ram said this would ensure, that VAT payments and transaction data automatically paid to the tax authority, merchants can immediately receive payment in their digital account and data records about the transaction are automatically submitted to the merchant’s bank, customers’ banks, Central Bank, and other regulators.
He highlighted the use of “smart” point of sale machines which are able to settle multiple transactions simultaneously.
Dr Ram stated, “Innovative approaches are tackling development challenges globally.”
He noted that while regional agreements have helped to expand intraregional trade and catalyze development, cross-border policy changes are needed to further deepen regional trade integration. “We need to step back in order to jump better,” he commented.
Regionally, he said, there are implementation gaps and the lack of a united approach to handling developmental challenges.
Trends in the region which support CSN, he said included the fact that internet usage is growing, with the share of Caribbean internet users growing from 27 per cent to 53 per cent between 2008 and 2016. He noted also that falling ICT service costs have improved affordability and adoption of broadband.
The economist, stating that public private partnerships were needed to make CSN a reality, he highlighted the key steps in the roadmap forward as including cabinet prioritization, planning labs and external audits.
A CSN, he contended would have positive impacts on not only trade and development, but also human and social development, economic integration, security and foreign policy coordination.