On 20 April 2022, the Government of The Bahamas released a draft digital assets policy, through which it seeks to realise considerable economic benefit for the country. We outline the policy and briefly share some initial thoughts and considerations.

 

If you perused the news roundup that was published on Monday, 25 April, you could not have missed all of the articles on the draft digital assets policy the Government of The Bahamas had tabled for discussion. The policy white paper’s public release was timely, as it preceded Crypto Bahamas, high-profile, invitation only event with “investors and builders in the blockchain, digital assets and web3 space” (Source: Crypto Bahamas); and so has been enjoying considerable regional and international visibility.

Prior to the white paper, and thanks to the release of the Sand Dollar, The Bahamas Central Bank-backed digital currency, which was rolled out in 2020, the country has been eager to position itself as a leading crypto/fintech country, and certainly the leader within the Caribbean region. Hence the proposed policy – from all reports – is emphasising how serious The Bahamas is about crypto and fintech, and its intention to position itself to fully leverage the benefits that could eventuate.

In this article we discuss the Policy White Paper: The Future of Digital Assets In The Bahamas, and share a few thought about the paper and initiative.

 

A quick primer on The Bahamas

Located 80 kilometres southeast of Florida, The Commonwealth of The Bahamas comprises over 3,000 islands, cays, and islets, spread out over 800 kilometres in the Atlantic Ocean, and covering an area of approximately 470,000 square kilometres.  Due to its proximity to the United States, tropical climate and many beaches, tourism is the largest contributor to its economy, accounting for around 50% of its gross domestic product (GDP), and employing half of the labour force, in country whose total population is around 400,000.

Following tourism, the second largest contributor to GDP, at around 15%, is banking and offshore international financial services. The country has established an attractive tax regime, and so although a popular location for offshore entities, it is also under continual scrutiny as a tax haven and for money laundering.

Based on its geographic location, The Bahamas is often along the path for the tropical storms and hurricanes that are experienced in the Caribbean region annually. In September 2019, the country was devastated by Hurricane Dorian, a category 5 storm, which decimated the islands of Grand Bahama and Great Abaco in particular, and caused damage estimated at USD 3.4 billion (Source:  Associated Press).

The recovery from Dorian is still on-going, but like all countries worldwide, The Bahamas has had to grapple with the COVID-19 pandemic, which since around March 2020, would have crippled the country’s tourism sector and consequently, the lives and livelihood of a large segment of the population. Although at the time of writing, the tourism industry would be recovering, no doubt, the events of the last few years would emphasise some of the vulnerabilities of tourism, and the benefits of further developing the country’s financial services sector.

 

The draft digital assets policy

The draft digital assets policy is a relatively easy read, which broadly sets out a proposed framework, comprising nine policy objectives that have been consolidated and summarised below.

  • To ensure that the country maintains the requisite enabling environment for its digital assets industry; and that it is not only adequately resourced in terms of skills and resources, but also is sufficiently agile to match the fast-paced and rapidly evolving nature of fintech.
  • To foster innovation, which in turn could increase country attractiveness and competitiveness, and to be in a position to leverage existing and emerging opportunities.
  • To identify and leverage opportunities and linkages that could be forged between the digital assets segment and the existing international financial services sector in The Bahamas.
  • To ensure that risk and security are continually and carefully managed and considered. A balance ought to be forged between innovation and the good standing of the country, versus the reputational damage that could occur should there be concerns about money laundering, financing of terrorism and other financial crimes.
  • To make provision for a taskforce needed to ensure that will drive implementation of the policy, and that there is oversight of the industry and for accountability, which will include both private and public sector actors.
  • To ensure citizen participation, both as users of digital assets and as part of the workforce of the Bahamian fintech/digital assets industry, and thus provide the public awareness, capacity building and training that will be needed.
  • To be mindful of environmental sustainability and climate change by encouraging the adoption of environmental friendly practices, which may be incentivised as appropriate.

Based on the above, the proposed digital assets policy appears to a channel through which The Bahamas will not only augment and diversify its financial services offering, but also to varying degrees, position itself to enjoy some first-mover advantages in a still emerging segment of the financial technology market.

 

Initial thoughts on the draft policy

As drafted, the proposed policy sets out a relatively broad framework, which it could be argued, provides some structure whilst also ensuring flexibility. The digital assets industry is rapidly evolving. Moreover, it is still in the early stages of its evolutionary process, and that path is unprecedented. Hence it is prudent to devise a framework that does not unduly limit the country to adjust as needed.

To that end, and to a considerable degree, the success of the policy will be largely dependent on the Digital Asset Policy Committee (DPC), which will be established to ensure that the “policy objectives are met and that all branches of government are aligned and working together to deliver the desired outcomes…”. The DPC would need to drive the requisite public sector machinery to ensure that the enabling environment is not only maintained and that there is coherence across government, but also that the environment evolves with sufficient agility whilst also maintaining cohesion.

It is also worth mentioning that the development of The Bahamas’ digital asset industry will be a multi-year and long-term process, which will need to continue well after the term of office of the current administration. To that end, it is hoped that there will be bipartisan support for not just the policy, but also the wider initiative, which needs to be suitably fostered regardless of political affiliation.

Notwithstanding, The Bahamas policy is being seen as progressive, since very few countries worldwide have created one. More importantly, and in doing so, the country is making a public declaration of its intentions to be a global leader in the digital asset space.

 

 

Image credit: WorldSpectrum (Pixabay)