The Marshall Islands could end up putting its one remaining relationship with a US bank at risk if it moves forward with plans to issues a national cryptocurrency, the International Monetary Fund warns.
The advice comes after the Executive Board of the International Monetary Fund (IMF) completed an “Article IV” consultation with the Republic of the Marshall Islands September 5th.
As part of its Marshall Islands assessment, the IMF found good growth in 2017, “accelerated to about 3½ percent in FY2017 (ending September 30) with a strong pick-up in fisheries and construction, with the latter due to the resumption of infrastructure projects.”
But the IMF also identified numerous risks:
“RMI is vulnerable to climate change because of its low elevation, and it has experienced natural disasters such as droughts and floods repeatedly. (As well) The RMI economy is highly dependent on external aid.”
The IMF also found that the Marshallese government has few sources of revenue, though, “fishing license revenues remain stable in nominal terms.”
ICOs (initial coin offerings) have raised millions for private projects across the world, and several countries, including Venezuela, Russia and Iran, have stated publicly that they are looking at creating a national cryptocurrency to raise revenues and help them exercise autonomy in global markets, which they say are dominated by the US dollar and US foreign policy.
Others say an state-run ICO is just another example of “money-printing” and fiscal mismanagement.
The Marshall Islands passed a law to permit it to create a national cryptocurrency in February 2018.
But the creation of such a Marhsall Islands digital currency, says the IMF, could get the country into trouble with its last remaining US banking partner:
“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.”
Banking standards in the Marshall Islands are looser than those observed by its foreign banking partners, says the IMF. KYC-AML (know your customer, anti-money laundering) laws and banking supervision generally should be strengthened in the Marshall Islands:
“(IMF Officials) emphasized the need for additional steps to strengthen the AML/CFT framework, including the successful completion of the national risk assessment and the subsequent development of an action plan. In addition, they recommended that the AML/CFT framework should…cover the offshore and maritime registries. Directors also called for further steps to enhance the banking supervision framework.”
Rather than a potentially destabilizing currency-print quick fix, the IMF Directors have, “underscored the importance of sound macroeconomic policies to safeguard financial stability,…reduce vulnerabilities, and promote sustainable growth.”
They also, “emphasized that fiscal consolidation over the medium term is key to reduce risks to long-term fiscal sustainability…(and) recommended…reversing the recent increase in recurrent spending and improving revenue administration and implementing tax reform.”
A national cryptocurrency, says the IMF, could undermine trust and signal a move in the opposite direction:
“Directors encouraged the authorities to be cautious about issuing a decentralized digital currency as a second legal tender and carefully consider the macroeconomic and financial stability risks. They noted that the potential benefits from revenue gains could be considerably smaller than the potential costs arising from economic, reputational, and governance risks. Directors commended the progress made in addressing correspondent banking relations risks.”
The IMF was formed in 1944 by 44 member countries seeking, “to build a framework for international economic cooperation and avoid repeating the competitive currency devaluations that contributed to the Great Depression…”
The IMF now has 189 member countries and, “promotes international financial stability and monetary cooperation. It also facilitates international trade, promotes employment and sustainable economic growth, and helps to reduce global poverty.” It is led by Christine Lagarde.
Addendum:
(Sept. 12th, 2018)
After this article was published, Crowdfund Insider was contacted by a person representing the Marshall Islands Sovereign (SOV) cryptocurrency project, Jackie Zupsic.
Ms. Zupsic forwarded a statement from David Paul regarding the Marshall Islands SOV cryptocurrency, which is already in development. Mr. Paul is Minister-in-Assistance to the President & Environment Minister, Marshall Islands:
Statement from Minister David Paul, Minister-in-Assistance to the President & Environment Minister of the Republic of the Marshall Islands
“Issuing the world’s first legal digital tender, the SOV, will keep the Republic of the Marshall Islands and its residents integrated into the digital economy, allow residents to transfer and receive funds safely and instantaneously without the need for a correspondent banks, who have long threatened to stop servicing small Pacific island countries like the RMI, and help the country make up for a sharp and imminent decline in external aid.”
“This is a serious endeavor and one that we are approaching with deliberation and care to ensure that SOV has a positive impact on the RMI, its residents, and the global economy. We are taking a methodical and measured approached to ensure that anti-money laundering mechanisms are embedded into the currency itself – a first for any currency. We look forward to further engaging with the IMF and other international stakeholders and introducing them to these protocols in the coming months.”
You may may view the SOV website.