Yong Sarah Zhou, a representative for the International Monetary Fund (IMF) declared that the Marshall Islands’ digital sovereign currency (SOV) could actually present a risk for the financial stability of the country.
Zhou said that the legal tender would “raise risks to macroeconomic and financial stability as well as financial integrity” of the country. She said that the COVID-19 precautions the country took were “swift and strong,” but that they had also put a strain on the local economy – as if having the virus running around doesn’t?
“The issuance of the SOV could jeopardize the RMI’s last USD corresponding banking relationship. This combined with anti-money laundering and combatting the financing of terrorism risks (including those related to the SOV) could disrupt external aid and other important financial flows, resulting in a significant drag on the economy,” warned Zhou.
Zhou also said that the “cautious approach” toward the SOV was justified because “the potential cost of the SOV issuance will likely outweigh the expected benefits.” The IMF representative mentioned that the gross domestic product fell by over 3% in FY2020 for the country, and it is believed to decline another 1.5% this fiscal year. The local economy may recover only next year.
“The RMI’s legal, regulatory, and institutional framework is not yet ready to accommodate the SOV issuance and manage associated risks.”
The government of the country first announced its plans to explore the creation of a digital currency several years back, in 2018, with the aim of having it used as a legal tender alongside the US dollar. The Marshall Islands are a sovereign state, but they are also an associate state of the US.
In June 2020, a crypto advisor to the islands revealed that an 18-month test phase was being conducted for “pre-SOV,” a token that later could be converted into SOV.