Wendy Craigg, deputy governor of the Central Bank, said in an interview with the Bahama Journal Monday the system will increase confidence in the settlement process while considerably reducing risks.
The proposed system, which will cost in excess of $2 million, is significant as there is an increasing number of business transactions which occur through electronic means, officials said. It comes as hundreds of persons are inconvenienced daily when they are unable to immediately gain access to deposited cheques.
Officials consider the Real Time Gross Settlement System (RTGS) as an important risk reduction tool and the cornerstone of a modern payments system.
“Two key elements of RTGS are finality and irrevocability which means that funds transferred in this manner are immediately at the disposal of the receiver and cannot be returned except with the active involvement and permission of the receiver,” Mrs. Craigg said.
She said that central banks worldwide have increasingly turned to the RTGS to provide the efficient transfer of funds through the financial system.
Governor of the Central Bank Julian Francis added that there are numerous benefits to be derived when the system is implemented.
“It will significantly reduce the cost of processing hundreds of thousands of cheques which are transacted through our system during the course of every month, even every week,” said Mr. Francis, who also spoke to the Journal Monday. “I don’t think the general public is aware of actually how many cheques are moved through our banking system even through the course of even the banking day.
“In automating the process, it will reduce significantly the cost of handling these pieces of paper which move through the system and are so important to our business and personal business during the cost of every day.”
Mr. Francis revealed that costs involved will be assumed partly by the Central Bank, while banking institutions will absorb the remaining costs.
“We know that it is important to do it that way not only because it is the way it is done in most countries like ourselves, but because this is really a part of the public infrastructure which will bring long-term benefits for The Bahamas economy and so there is a very persuasive case to be made by the Central Bank for assuming a portion of that cost,” Mr. Francis said.
Prime Minister Perry Christie announced during his budget communication in May that the Central Bank and local clearing banks had commenced plans to introduce an Automated Clearing House System (ACH) and the RTGS system.
The ACH would facilitate small value transactions with a significantly reduced time delay in the clearing of those payments in comparison to the current system used by banks. The RTGS would permit real time instantaneous processing of larger transactions.
Mr. Christie said that electronic transactions must be accommodated in the most efficient way as currently, local cheque processing and payments settlements are carried out manually among domestic banks.
“In an economy where the volume of non-cash transactions has increased significantly in the last decade, more efficient clearing mechanisms are needed to ensure that the payments system reinforces as opposed to encumbers domestic commerce,” Mr. Christie said.
Meantime, the Central Bank’s initiative, which is overseen by a newly created National Payments Council, is in its second phase.
Heads of local clearing banks make up the Council.
In the interim, banks will implement other automated systems, according to Mrs. Craigg. She noted that the ACH and RTGS systems will greatly increase the scope for new products to be offered to consumers, such as direct debits and credits.
“An example of direct debits would be the previously authorized automatic deduction of utilities payments from your account eliminating the need to make personal visits to a variety of offices,” Mrs. Craigg said. “A direct credit example would be the crediting of your account with your salary or other regular credits such as a pension or welfare payment.”
The public sector – as the largest initiator and receiver of payments – will find the new facilities to be of tremendous value, she added.
Mrs. Craig noted that many countries, including regional counterparts like Barbados, have already gone through the process of implementing these new systems in recent years.
She said The Central Bank has been studying the need for modernization of the payments system for some time, cognizant of the need to maintain consistency with international standards and practices.
“These reforms have been proven to be effective in many other countries and to delay further would be to deny those benefits to the Bahamian economy,” she said.
The Central Bank is now inviting bids from suppliers for the modern check clearing system which is expected to be implemented by April 1, 2004.
By Hadassah Hall, The Bahama Journal
