IMF Discourages Marshall Islands From Offering National Crypto ‘Sovereign’ (SOV)
As the Marshall Islands considers offering a decentralized cryptocurrency called the Sovereign (SOV), the IMF discouraged the nation's initiative stating it poses "macroeconomic and financial integrity risks".
At a regular bilateral discussion between the Republic of Marshall Islands (RMI) and the International Monetary Fund (IMF), the latter has advised the small nation to reconsider its plan of offering a national cryptocurrency as a second legal tender.
IMF speaks against cryptocurrency as a second legal tender for RMI
The Republic of the Marshall Islands (RMI) is a relatively small nation, with a population of just over 50,000 people, and relies heavily on the United States.
In February, CCN reported that the parliament of the Republic of Marshall Islands has passed legislation to replace the US Dollar, the country’s current fiat. The Republic launched its own government-back cryptocurrency called the Sovereign (SOV) to serve as the country’s second official currency.
At that time, Hilda C. Heine, the President of the Marshall Islands, told Finance Magnates that the nation was not abandoning the USD, it was only launching the SOV as a second legal tender, to have other “options”.
In an official publication issued on September 10, the International Monetary Fund has advised the Republic of the Marshall Islands to stay clear of cryptocurrencies as a second legal tender considering the risks involved.
The IMF warned the small nation of potential pitfalls in its plan.
“The issuance of a decentralized digital currency as a second legal tender would increase macroeconomic and financial integrity risks, and elevate the risk of losing the last U.S. dollar correspondent banking relationship.”
Risks of using cryptocurrency as a legal tender
In the report, IMF addressed the government of the Republic of the Marshall Islands, stating that introducing a digital currency as a legal tender will pose risks to the country’s financial integrity, as well as relationships with foreign banks.
IMF emphasized in the report that the country which has only one domestic commercial bank would risk of losing its last U.S. dollar correspondent banking relationship (CBR) with a U.S.-based bank if it launches a national cryptocurrency.
The IMF stated that a lack of strict KYC and AML measures at launch could be perceived as a means of facilitating crime, funding terror or laundering money, which would result in strident scrutiny and possible loss of CBR.
The Republic of Marshall Islands are “highly dependent on receiving and spending U.S. grants,” the IMF reemphasized that the loss of important banking relationships could harm the country’s economy.
In the report, the IMF expressed its fears that U.S. banks could cut ties with the Marshall Islands if the nation lacks a comprehensive, anti-money laundering measures in place.
IMF: reconsider using cryptocurrency as a legal tender
With the report, IMF only stresses that the government of the Republic of Marshall Islands should seriously reconsider its plans to issue a digital currency as legal tender.
“The potential benefits from revenue gains appear considerably smaller than the potential costs arising from economic, reputational, AML/CFT, and governance risks. In the absence of adequate measures to mitigate them, the authorities should seriously reconsider the issuance of the digital currency as legal tender.”
Although the IMF does not have the power to decide whether or not the Marshall Islands issues a digital currency as a legal tender, its analysis of the counter effect should be taken rather seriously.