The Banking Blues of the Caribbean

The Caribbean, often painted in vibrant hues of paradise, is facing a financial storm that’s anything but tropical. With 35 nations each sporting their unique banking woes, the struggle is real. Imagine trying to open a bank account in an economy that relies heavily on foreign trade and remittances—it’s akin to playing a game of Monopoly where the bank has gone on holiday. The region’s issues stem from dollarization and external dependencies, making life tough for both individuals and businesses alike.

The De-Risking Dilemma

Now, enter the buzzword: de-risking. It sounds like something you’d throw out in a corporate meeting to sound smart, but for Caribbean banks, it’s no laughing matter. This practice refers to international banks cutting ties with smaller local banks in regions deemed risky, specifically those marked by the Financial Action Task Force (FATF) for suspicious activities. Talk about putting the financial squeeze on small economies!

With some Caribbean countries losing as much as 50% of their correspondent relationships, businesses and everyday citizens are taking the hit. Prime Minister of Barbados, Mia Amor Mottley, and Trinidadian Prime Minister Keith Rowley even got the U.S. Congress to listen in on their plight, though I’m sure they got a lot of blank stares instead of sympathy. Mottley’s comments about how long it takes to open an account are something we can all sympathize with, as waiting in bank lines seems to transcend borders and economies.

Digital Currency: The Light at the End of the Tunnel?

As one door slams shut, another one creaks open! Enter Central Bank Digital Currencies (CBDCs), the potential saviors of this financial fracas. According to the Atlantic Council, three CBDCs have already taken flight in the region: the Bahamas’ Sand Dollar, Jamaica’s Jam-Dex, and DCash from the Eastern Caribbean Central Bank. These digital currencies are aiming to pave the way for a more inclusive banking system and, fingers crossed, rescue the Caribbean from financial purgatory.

Carmelle Cadet, founder of Emtech, offers a beacon of hope. Her company has been knee-deep in the CBDC game and has been working with Haiti on developing its own digital currency. With her background at IBM’s blockchain division, she understands that getting this rolling is more akin to a marathon than a sprint. Ideally, these currencies could provide better liquidity and help the Caribbean turn the tide against the effects of dollarization.

A Journey Unlike Any Other

The path to CBDC rollouts in the Caribbean is paved with unique challenges and peculiarities that emerging markets face. According to Cadet, one big difference is that emerging markets are typically unburdened by legacy banking systems, whereas developed markets are having to forklift their outdated practices into the new age. It’s a case of being nimble versus being weighed down by convention.

The Road Ahead and Its Missteps

However, with great potential comes great responsibility—and perhaps misadventures. The Sand Dollar, the darling of the CBDC world, was supposed to revolutionize Bahamian banking. Yet, by mid-2022, it reported only $300,000 in circulation with 30,000 digital wallets. Yikes! DCash also faced very public technical difficulties that left users out in the cold for two months. These hiccups just go to show that while the ambition is there, the execution needs to catch up.

As Cadet now waits for further directives from the Haitian Central Bank on the next steps for a CBDC, it’s clear that the journey ahead is both daunting and exciting. The Caribbean might not have solved all its financial woes just yet, but if anything, it certainly has the tenacity and the inventive spirit to keep pushing forward.