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In a statement published on March 23, International Monetary Fund (IMF) spokesperson Yong Sarah Zhou singled out the Marshall Islands’ digital currency Sovereign (SOV) as posing undue risks to the island’s monetary stability.
Concluding a consultation exercise on the digital currency, Zhou said issuing SOV as legal tender in the Republic of the Marshall Islands (RMI) would “raise risks to macroeconomic and financial stability as well as financial integrity.” In particular, the IMF report highlights the impact of COVID-19 restrictions on the local economy, suggesting these may make the island economy particularly vulnerable to the effects of a digital currency.
“The issuance of the SOV could jeopardize the RMI’s last USD corresponding banking relationship…This combined with anti-money laundering and combatting the financing of terrorism risks (including those related to the SOV) could disrupt external aid and other important financial flows, resulting in a significant drag on the economy,” Zhou added.
She continued, suggesting the islands’ current “cautious approach” was the correct one, in light of the “potential cost of the SOV issuance will likely outweigh the expected benefits.”
“The RMI’s legal, regulatory, and institutional framework is not yet ready to accommodate the SOV issuance and manage associated risks.”
The Marshall Islands first began trialing a digital currency back in 2018, with the intention of using it in parallel to the U.S. dollar within the local economy.
The islands, which are linked to the U.S., despite being sovereign in their own right, were reported to have been conducting an 18-month trial into the technology prior to a more formal roll-out. Doing so, it became one of the first territories in the world to experiment with a digital currency powered by blockchain technology.
The Marshall Islands is home to a population of 58,000, spread across 29 atolls and 5 islands.
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