September 11, 2018 10:36 PM
A recent report from the IMF warns the small island nation that its planned national digital currency poses more risks than it offers benefits. Marshallese authorities seem to disagree.
The International Monetary Fund (IMF), as part of its regular bilateral discussions with members and following a consultation with the Republic of the Marshall Islands (RMI), has advised the small nation against its plans to create a government-issued digital currency.
In February 2018, the RMI solidified plans for its digital currency to act as a second legal tender for the network of islands alongside the US dollar. The currency, the Sovereign (SOV)[1], is planned for its own network, the "Yokwe framework"; it would avoid the anonymity of other digital currencies and, the RMI suggests, make it suitable for a regulated banking system. The Marshallese government gave its approval for the SOV to become legal tender once it was issued and distributed via an initial coin offering (ICO).
In a press release[2] following the consultation, IMF directors encouraged RMI authorities to be cautious about issuing a decentralized digital currency and to "carefully consider the macroeconomic and financial stability risks." According to the IMF, "The potential benefits from revenue gains appear considerably smaller than the potential costs." Volatility and value of the SOV would also pose risks, it warned.
The attached staff report goes into further detail on the risks associated with issuing the SOV.
The IMF warned that unless strong anti-money laundering (AML) and anti-terrorism measures are implemented, issuance of the digital currency could elevate the risk of the RMI losing its last US dollar correspondent banking relationship (CBR). The loss of this relationship could be a major loss to the RMI.
The report explains:
"The law requires that
