In February the Republic of the Marshall Islands (RMI), an island country located near the equator in the Pacific Ocean with a population of about 50,000, announced the plan to issue a cryptocurrency that will be legal tender.
According to the plan the new currency “Sovereign” (SOV), developed in partnership with Israeli fintech startup Neema, would circulate as legal tender in the country, alongside its current local currency, the US dollar. The deployment of the SOV would make the RMI the first sovereign nation to issue a cryptocurrency that is legal tender in the nation.
“This is a historic moment for our people, finally issuing and using our own currency, alongside the USD,” said RMI President Hilda C. Heine. “It is another step of manifesting our national liberty."
I concluded my February article on the planned SOV launch noting that the RMI is a tiny island nation, but it is a sovereign nation and a member of the UN. Therefore, if the RMI will eventually deploy a cryptocurrency that is also legal tender, the impact could be huge.
Huge potential impact indeed, but it's also hugely probable that the big boys will very much dislike the idea and bully the RMI to kill it in the cradle, I should have added.
Now, in "what could be seen as wise financial counseling or a threat, the International Monetary Fund [IMF] is urging the Republic of the Marshall Islands (RMI) to abandon its plan to launch a cryprocurrency as legal tender," Gizmodo reports. The IMF released a report that strongly advises against the SOV launch plan, stating that the plan would endanger the RMI's relations with the US banking system.
Here's the threat:
"The RMI’s only domestic commercial bank is at risk of losing its last U.S. dollar correspondent banking relationship (CBR) with a U.S.-based bank as a result of heightened due diligence by banks in the U.S. In addition, RMI plans to issue a decentralized digital currency as a second legal tender in addition to the U.S. dollar and the relevant law was enacted in February 2018..."
"Unless strong AML/CFT [Anti Money Laundering / Countering Financing of Terrorism] measures are implemented, the issuance of the SOV, as contemplated, will elevate the already high risks of losing the last U.S. dollar CBR. The law requires that all users of the SOV undergo standard 'Know Your Customer (KYC)' procedures and that their identity be recorded on the blockchain. However, neither the content of the 'standard KYC procedures,' nor the modalities of their implementation have been established. In addition, other key measures such as transaction monitoring, reporting of suspicious transactions, compliance monitoring, and sanctioning of compliance failures are not addressed. In light of the potential for digital currencies to be misused for money laundering and terrorist financing (ML/FT) purposes, the issuance of the SOV without effective implementation of comprehensive AML/CFT measures could offset recent progress in strengthening the AML/CFT framework, leading to increased scrutiny from the AML/CFT standard setter and potential countermeasures, including, possibly, the immediate loss of the CBR."
"It’s unclear how the RMI will respond to the report, but unfortunately true sovereignty in this world is complicated," concludes the Gizmodo story. This is, of course, very true. But I am persuaded that freedom for individuals, and sovereignty for nations, are very worth paying a price for.
One could think that the plan to reduce RMI dependence on the US dollar and issue a sovereign cryptocurrency as legal tender is too bold, but I think it's not bold enough. In fact, the SOV would be based on a parmissioned blockchain controlled by the authorities. What else is new?
What is needed, I believe, is a small sovereign nation making the really bold move to accept a real, permissionless and public cryptocurrency, such as Bitcoin or Ethereum, as additional legal tender. The inevitable mobbing by powerful nations and their "independent" watchdogs would be more than compensated by the influx of capital and talent that the nation would attract.
Image from Max Pixel.
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Crypto Insider Editor Giulio Prisco is a writer specialized in science, technology and business. He is persuaded that crypto has the potential to bring disruptive positive changes to the internet and society at large.