Will the decision by the Republic of Marshall Islands (RMI) to become the world’s first country to issue its own blockchain sovereign cryptocurrency (SOV) be a momentous game changer? Or is it just another pie in the sky project that jumped the gun?
Already, it has had its share of sceptics. The International Monetary Fund (IMF), in its latest Article IV consultation with RMI (report released in September last year), likened the move to issuing ‘helicopter money’, a term coined in the 1960s by American economist Milton Friedman to describe a hypothetical monetary policy that involves printing large sums of money and distributing it to the public to stimulate the economy.
The IMF concern stems from the RMI’s plans to distribute a portion of the SOV units free to Marshallese and to a number of RMI trust funds, once it is approved for distribution.
Devoting a significant section of its report specifically to the RMI’s SOV project, the IMF cautioned the U.S. compact country of the many risks associated with the planned issuance, among them monetary instability and macroeconomic challenges.
“Considering the significant risks, (IMF staff) recommends that the authorities seriously reconsider the issuance of the digital currency as legal tender,” IMF’s report noted. “The potential benefits from revenue gains appear considerably smaller than the potential costs arising from economic, reputational, AM/CFT, and governance risks. While technology may help to address some of these risks, others would need to be mitigated through institutional changes. Furthermore, the use of SOV as a means of exchange in transactions would require significant additional costs to upgrade RMI’s telecommunications infrastructure.”
Those who work with blockchain technology in the Pacific feel it may be a little too early, although they will be keeping a close watch on the initiative.
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