News broke today that the Republic of the Marshall Islands have been warned against the adoption of a digital currency as a second form of legal tender. The International Monetary Fund (IMF) have been quoted as saying that the country, which consists of hundreds of islands in the Pacific Ocean, should “seriously reconsider”.
Currently the Marshall Islands only use the US dollar counts as legal tender in the islands. However, in Febuary this year a law to adopt a digital currency named “Sovereign” alongside the dollar was passed.
The first Sovereign Coins are planned to be issued to members of the public via an initial coin offering (ICO) later this year. However, IMF directors said the potential benefits of the move were much smaller than the potential costs of “economic, reputation and governance risks”.
“[Marshall Island] authorities should seriously reconsider the issuance of the digital currency as legal tender,”
The main issue resides around the only domestic commercial bank in the country. It is reported that it is at risk of losing its only correspondent banking relationship with another bank in the US. Without this relationship Marshall Island citizens will be unable to transfer dollars in and out of the country.
The report goes on to highlight the Marshall Islands’ dependence on foreign aid, and the fact that the country is vulnerable to natural disasters. Adopting a digital currency as an official form of legal tender would not only threaten financial integrity with the US bank. The result could mean future disruption to foreign aid.
However, not everyone agrees with the IMF’s report. David Gerard, author of Attack of the 50 foot Blockchain said ‘The global financial organisation was expressing concern because it was aware of traditional banks’ wariness around digital currencies.’
“Those banks may associate crypto currencies with criminal activity, including money-laundering, because the digital currency networks have been designed to move coins or tokens around at great speed.”
This would give the US correspondent bank cause to rethink its relationship with the Marshall Islands, he explained.
“The IMF is not strong-arming the Marshalls, what they’re doing is describing what will obviously happen if they proceed – the large correspondent bank will be quite worried,” he added.
Despite the report from the IMF, the Marshall Islands still plan to launch the currency later this year. This will be another win for the mass adoption of crypto and digital currencies in a year which has seen prices tumble.