In what could be seen as wise financial counseling or a threat, the International Monetary Fund is urging the Republic of the Marshall Islands (RMI) to abandon its plan to launch a cryprocurrency as legal tender.
With a population of just over 50,000 people, the Marshall Islands is a tiny nation that heavily relies on other countries, especially the United States. The U.S. formally agreed in 1986 to provide foreign assistance and military defense to the group of islands and the country’s legal tender is the U.S. Dollar. But with the rise of cryptocurrencies, it seems the Marshall Islands saw a potential way to feel a little more independent.
In February, legislators passed a measure to create a second legal tender that would be a cryptocurrency known as “Sovereign” or “SOV.” Hilda C. Heine, the President of the Marshall Islands, told Finance Magnates at the time, “It is another step of manifesting our national liberty.” No one was prepared to abandon the dollar, but it was just nice to have an option. The deal with the U.S. is part of reparations for nuclear testing in the region during World War II and is set to expire in a few years. An initial coin offering was seen as a way to make up for shortcomings in the budget. But the IMF released a report on Monday that strongly advised against the move.
CoinDesk was first to notice the powerful organization’s recommendations. Though the IMF can’t technically tell the Marshall Islands not to go forward with its crypto-dreams, its analysis should be taken quite seriously. Citing uncertainty from the end of the U.S. Compact grants and frequent weather-related disasters, the IMF encouraged authorities to “carefully consider the macroeconomic and financial stability risks.” The report says that the country only has one domestic commercial bank and it is “at risk of losing its last U.S. dollar correspondent banking relationship (CBR) with a U.S.-based bank.” The IMF fears that U.S. banks could cut ties with the country without the presence of comprehensive, anti-money laundering measures in place. In summary, the report stresses that RMI “authorities should seriously reconsider the issuance of the digital currency as legal tender.”
There’s nothing about the IMF’s conclusions that sound wrongheaded, but it’s hard to not feel a hint of “that’s a nice island you have there, it’d be a shame if something happened to it.” The organization is highly influential in the global economy and its leaders aren’t really fans of cryptocurrencies. IMF Director Christine Lagarde has urged central banks to get into blockchain technology now in order to “fight fire with fire.” For true bitcoin bros, that kind of talk just reaffirms their belief that the global financial system is a rigged game run by a shadowy cabal. More likely, the IMF is just giving sensible advice.
It’s unclear how the RMI will respond to the report, but unfortunately, true sovereignty in this world is complicated.
UPDATE 9/12, 11 AM: Gizmodo received the following statement from Minister David Paul, Minister-in-Assistance to the President & Environment Minister of the Republic of the Marshall Islands:
Issuing the world’s first legal digital tender, the SOV, will keep the Republic of the Marshall Islands and its residents integrated into the digital economy, allow residents to transfer and receive funds safely and instantaneously without the need for a correspondent banks, who have long threatened to stop servicing small Pacific island countries like the RMI, and help the country make up for a sharp and imminent decline in external aid.
This is a serious endeavor and one that we are approaching with deliberation and care to ensure that SOV has a positive impact on the RMI, its residents, and the global economy. We are taking a methodical and measured approached to ensure that anti-money laundering mechanisms are embedded into the currency itself – a first for any currency. We look forward to further engaging with the IMF and other international stakeholders and introducing them to these protocols in the coming months.