A representative of the International Monetary Fund said the Marshall Islands ‘digital currency would currently pose a risk to the islands’ financial stability.
Following a consultation in March, IMF representative Yong Sarah Zhou said that the issuance of the Marshall Islands’ digital independent currency, called SOV, “will increase risks to financial integrity as well as macroeconomic and financial stability.” According to Zhou, the measures taken by the Republic of the Marshall Islands to contain COVID-19 may be “swift and powerful”, but they also strained the local economy.
“Issuance of SOV could jeopardize RMI’s recent banking relationship with the US dollar. This, combined with the prevention of money laundering and the fight against financing of terrorism risks (including those related to SOV), can disrupt foreign aid and other important financial flows, causing a significant drift in the economy. ”
Given that “the potential cost of SOV issues will likely outweigh the expected benefits,” he added, the “prudent approach” to the currently available SOV is warranted. According to the IMF representative, RMI’s gross domestic product fell by more than 3% in FY2020 and is expected to drop another 1.5% this fiscal year with a possible recovery in the local economy in 2022.
“RMI’s legal, regulatory and institutional framework is not yet ready to comply with SOV regulation and manage the associated risks.”
Government officials first announced that RMI will seek to create a digital currency that can be used as a legal payment instrument in 2018 with the US dollar. While the Marshall Islands are a sovereign state, it is also a state associated with the United States. In June, a cryptocurrency advisor to the islands said RMI was conducting an 18-month testing phase for “preSOV”, a token that could later be converted into SOV.
Central bank digital currencies have had success in some island countries. The Bahamas, for example, launched the Sand Dollar digital currency in October to further financial inclusion in the archipelago nation of more than 700 islands.