The Marshall Islands plans for a national cryptocurrency has encountered a setback after the International Monetary Fund (IMF) warned against the idea.
Politically, the Marshall Islands is a presidential republic in free association with the United States, with the US providing defense, subsidies, and access to US-based agencies such as the Federal Communications Commission and the United States Postal Service.
Although the new cryptocurrency, the Sovereign (SOV), was set to displace the US dollar as the official currency, it was likely that the country’s 53,066 population would continue to use the dollar until banks and credit companies put in place a framework for the currency’s use. The new report by the IMF could put the future plan in jeopardy; the IMF has used provocative language urging the island republic to cease its activities, with this warning:
“The potential benefits from [digital currency] revenue gains appear considerably smaller than the potential costs arising from economic, reputational, AML/CFT, and governance risks. In the absence of adequate measures to mitigate them, the authorities should seriously reconsider the issuance of the digital currency as legal tender.”
There is a critical view held by economists in some countries whose governments may be considering similar moves to adopt a national cryptocurrency, that a mass decentralization of financial power may result in the diminishing of IMF’s authority. A warning by IMF’s deputy director Dong He earlier this year clearly suggests that the organization may be secretly worried at the movement towards global digital currency adoption.
He argued that “crypto assets may one day reduce demand for central bank money”, suggesting central banks should “forestall the competitive pressure crypto assets may exert on fiat currencies”.
David Gerard, author of ‘Attack of the 50-foot Blockchain’, asserts that the IMF is not so heavy-handed as they might appear, suggesting that, “The IMF is not strong-arming the Marshalls, what they’re doing is describing what will obviously happen if they proceed.”
As yet there has been no comment from the Marshall Islands authorities over the IMF suggestion they should “seriously consider” their great crypto-leap forward. Other countries considering similar plans to integrate cryptocurrency into their banking systems at this level will be interested to see how this situation develops in the weeks to come.
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