Technology Adviser: Norton Rose Fulbright

Central Bank of the Bahamas
Central Bank of Bahamas became the first in the world to issue a retail CBDC
Photo: Mikael Latreille

There is no doubt technology can improve the efficiency of payments, but it is not infallible, and central banks cannot afford to blindly place trust in it. The perceived threat of Libra, the growing demand for digital money and forced transformation as a result of Covid‑19 means central banks are exploring the use and risks of central bank digital currencies (CBDCs).

In January 2020, the Central Bank of The Bahamas went live with the first consumer-ready central bank digital currency – the sand dollar. Plans for the proposed sand dollar were revealed in March 2019, following the announcement of the central bank’s partnership with blockchain start-up NZIA. Being first is never easy, and choosing the right technology partner is no mean feat. To ensure NZIA’s technology was suitable for the central bank, it partnered with law firm Norton Rose Fulbright. 

“We assisted on NZIA’s successful request for proposal response, consulted on the design of NZIA’s unique CBDC solution and drafted and negotiated various documents, including the final agreement between NZIA Limited and the Central Bank of The Bahamas,” explains John Kim, global business partner at Norton Rose Fulbright.

The law firm worked closely with its client and the central bank to ensure the retail CBDC met existing regulatory requirements, and also improved the efficiency of digital payments.

Bobby Chen, assistant manager for e-solutions at the Central Bank of The Bahamas, said Norton Rose Fulbright had been instrumental in ensuring NZIA was presented in a “positive light” and remained “in good standing” throughout the process. “We would work with Norton Rose Fulbright again based off our current experience,” he said.

A core aim of the Bahamian project is to boost financial inclusion. While financial development and access to services are relatively high in the Bahamas, due to its geography, pockets of the population are excluded – particularly outlying communities where physical banking services are not cost-effective.

Having an adviser on board throughout the process, Chen said, was “extremely important” because regulators “must understand the legal foundations, interpretations, regulations and implications of CBDC”. He said it was particularly important for the central bank to understand how the sand dollar would relate to monetary policy, market infrastructure and consumer protection, among other things.

The sand dollar will be offered to the public via a set of authorised financial institutions, which have developed e-wallets for the purpose. Currently, four money transmission businesses, three payment services providers and one commercial bank have been authorised to offer sand dollar services.

“After leading the documentation at the request for proposal and contract stages, we also helped shape and test the core architecture of NZIA’s truly innovative solution,” says Kim.

“Our input resulted in a system that would not only meet the requirements of current financial and regulatory regimes, but actually leverage them to provide a CBDC solution that minimises disruption and fosters adoption.”

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