Marshall Islands to create a cryptocurrency that will be legal tender along with US dollar

The Republic of the Marshall Islands announced back in February of this year that it was intending to issue digital currency as an alternative to the US dollar which is now the official currency.

IMF warns the Republic of risks of adopting a cryptocurrency as legal tender

The International Monetary Fund (IMF) has warned the Marshall Islands (RMI) of the risk of adopting a cryptocoin as a second legal currency in a press release on September 10. The release said that the adoption of digital currency as one form of legal tender could pose risks to the financial integrity of the country as well as its relationships to foreign banks.

The digital currency would be adopted as a second official currency after the US dollar. This could lead the RMI to the loss of the last US dollar correspondent banking relationship through the Bank of Marshall Islands because of the rising due diligence by banks in the United States. The RMI economy is highly dependent on receiving and spending US grants and hence the loss of important banking relationships would hurt the country's economy.

The IMF also thinks that the cost of adopting a cryptocoin that would include development and enforcement of anti-money laundering(AML) techniques and also counter measures to avoid financing of terrorism(CFL) would outweigh any financial advantages. The press release said: “The potential benefits from 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.”

The announced plan for the cryptocoin the Sovereign

The Marshall Islands announced at the end of February that it would release its own cryptocurrency via an initial coin offering (ICO) and free trading. Two officials, the house speaker and senator Kenneth Kedi claimed that the parliament had endorsed the creation of the cryptocoin called the Sovereign(SOV).

The two officials, one of whom is house speaker and senator Kenneth Kedi, said that the Pacific nation’s parliament this week endorsed the creation of the currency, which will be called the Sovereign (SOV). The RMI official currency at present is only the US dollar. Once issued the Sovereign will circulate alongside the dollar.

The minister-in-assistance to the president David Paul said that the new state-issued coin should appear before the end of 2018. He said the coin should serve the long-term needs of the country. There are only 53,000 citizens in the republic. Some of the revenue from the ICO will be used to provide healthcare for citizens who were victims of past US nuclear testing on the islands.

President Hilda Heine said of the plan: “This is a historic moment for our people, finally issuing and using our own currency, alongside the USD. It is another step of manifesting our national liberty.”

The RMI has partnered with Neema an Israeli company to issue 24 million units of the Sovereign. It will cap the number issued to avoid inflation.

Previously published in Digital Journal