Governor Dr The Most Honourable Kevin Greenidge is again defending the Central Bank’s decision to establish an instant payment system, arguing that the country could not afford to leave it to market forces.
He also said that last month’s introduction of BiMPay was fulfilling the monetary mandate as outlined in the National Payment System Act passed by Parliament in 2021 and also via the 2020 amendment of the Central Bank Act.
He gave these explanations yesterday in the working paper Why Barbados Built An Instant Payment System, And Why The Central Bank Had to Do It.
“A payment system is public infrastructure in the same sense as a road or a port. It determines whether a small business survives the gap between doing the work and being paid for it,” Greenidge said.
National income
“It determines whether a worker paid on Friday can meet an obligation on Friday. It determines how much of the national income is consumed simply by moving money from one place to another. For a generation, we accepted that this cost was fixed, and that the pace of payment was whatever the system happened to allow. It was not fixed.
“It required someone to decide that the country would build something better and to accept responsibility for the disruption of doing so. That is why the Central Bank took action,” he explained.
The Governor stressed that the switch from a fragmented payment system, where payments were costly and sometimes delayed, to BiMPay where transfers were instant at any time and day, was preferable. He also said such a shift could not be left to competition among financial institutions, asserting that “every institution has a rational reason to wait for someone else to go first, and so nobody goes”.
“The market here compounds the problem. Fewer than 300 000 people cannot support nine competing payment infrastructures, and several of our largest institutions answer to parent companies whose investment priorities are set in other countries and weighed against other markets. Waiting for that alignment to occur spontaneously was not a strategy. It was a hope,” Greenidge said.
“There is also a matter that only a Central Bank can settle. Final settlement between institutions happens in Central Bank money, on the Central Bank’s books. That is what makes a payment irrevocable rather than a promise between two commercial parties.”
He added: “A shared national rail requires an operator that every participant must trust and that no participant can capture. In every economy that has built one, that operator has been the central bank or an entity it stands behind. So the choice was not between the Central Bank acting and the market acting. It was between the Central Bank acting and nothing happening.”
Greenidge also noted that the instant payment system was “a duty placed on the Central Bank by Parliament”, specifically under the National Payment System and Central Bank Acts.
The Governor’s position was that “read together, those provisions do more than permit the Central Bank to act”.
“They require the Central Bank to modernise the national payment system, to protect consumers, to ensure that the system runs efficiently and, where it is necessary, to operate a system itself. It is a solemn responsibility that we do not take lightly nor resile from,” he said.
With BiMPay affected by technical challenges which resulted in the late payment of salaries and some other payments, Greenidge also disagreed with suggestions that the old and new systems could run parallel, at least initially.
“A phased migration running two systems in parallel sounds prudent and is not. It doubles cost, halves urgency and gives every participant a reason to keep one foot in the past. We had seen enough programmes in this region drift for years in that posture.” (SC)