Blockchain technology has the potential to revolutionise intraregional trade in the Caribbean, according to the findings of a recent study.
The study titled, “A Caribbean Settlement Network: Can Blockchain Ease Intraregional Trade in the Caribbean?” was co-authored by Dr. Antonio Alleyne, Lecturer in Economics at The UWI, Cave Hill Campus, in collaboration with economic experts Marcos Allende López, Researcher at the Inter-American Development Bank (IDB); Laura Giles Álvarez, Country Economist at the IDB; Jeetendra Khadan, Senior Economist with the World Bank’s Prospects Group; and Kimberly Waithe, Economics Consultant at the IDB.
The research argues that distributed ledger technology (DLT), such as blockchain, has the potential to significantly reduce non-tariff barriers (NTBs) and promote intraregional trade within the Caribbean. By addressing challenges related to distance, culture, bilateral exchange rates, transfer fees, and required documentation, DLT could facilitate smoother and more efficient trade transactions among Caribbean countries. The paper emphasises the importance of building on existing blockchain initiatives, strong governance structures, public acceptance, and harmonised regulatory frameworks to successfully implement a Caribbean settlement network using DLT.
As regional integration rises to the top of the Caribbean’s policy agenda, spurred by the recent impact of the COVID-19 pandemic, the need for cohesive regional strategies has become paramount. The pandemic highlighted the critical role of regional organisations in coordinating policy responses and ensuring access to essential medical supplies. However, the authors argue that stronger trade ties are crucial for the Caribbean to tackle medium- and long-term challenges.
The Caribbean’s heavy reliance on imports for essential goods such as fuel and food, coupled with the significance of exports for economic activity, underscores the importance of trade. Over the past two decades, the combined volume of exports and imports in Caribbean countries has averaged 100 per cent of the Gross Domestic Product (GDP), significantly higher than that of larger economies like the United States and regional blocks such as the euro area.
Despite the establishment of CARICOM and the CARICOM Single Market and Economy to promote economic integration, intra-CARICOM trade remains low, constituting only ten per cent of total trade in the region as of 2015. The disparity is stark when compared to the European bloc, ASEAN, and the broader Latin America and the Caribbean region.
The research, using a two-step panel regression gravity model for 15 CARICOM countries, identifies NTBs such as distance, cultural differences, bilateral exchange rates, transfer fees, and required documentation as significant impediments to trade. Encouragingly, pilot projects worldwide applying DLT for payment settlements and trade facilitation suggest that blockchain technology could reduce the prevalence of these barriers.
Policy recommendations from the study emphasise the need to build on advanced experiences with blockchain technologies in larger financial institutions and other countries. Initial steps, such as the Sand Dollar in The Bahamas, and DCash that is the Eastern Caribbean Currency Union’s (ECCU)’s digital currency, provide promising foundations. The success of a Caribbean settlement network, however, hinges on strong governance structures, public acceptance, and regional championing of both greater trade integration and DLT use.
Furthermore, the study highlights the necessity for robust orchestration vehicles to maintain DLT networks, compliance with regulations, and economic sustainability. Harmonisation and compatibility of regulatory frameworks across countries are also essential to ensure seamless integration within the region and with major trading partners.
As the Caribbean continues to navigate global uncertainties, this research underscores the transformative potential of blockchain technology in fostering deeper regional integration and enhancing trade.
