Despite International Monetary Fund’s (IMF) warning, the parliament of Marshall Island passed a law supporting the launch of the world’s-first legal cryptocurrency. Earlier this week, the law went un-opposed by an official council.
In February 2018, the Parliament of the Republic of the Marshall Islands (RMI) passed the Declaration and Issuance of the Sovereign Currency Act 2018. The act announced the adoption of a cryptocurrency, ‘Sovereign’ or ‘SOV’, as legal tender.
The officials said this would be a big step towards “manifesting [their] national liberty.” The government of Marshall Islands hopes to see mass acceptance of the currency with in the country and outside. The officials have high hopes of Sovereign being used for every monetary transaction, from paying taxes to buying groceries.
On 10th of September, the IMF warned the Marshall Islands of the down sides of accepting cryptocurrency as a legal tender. The IMF said this could pose risk to the country’s relationships with foreign banks as well as its financial integrity. Losing ties with international banks could harm the country’s economic stability since it is “highly dependent on receiving and spending U.S. grants,”
The IMF warned the RMI about the risks of adopting a cryptocurrency as a second legal tender. Anti-money laundering (AML), counter financing of terrorism (CFT), economic, reputational and governance risks could bruden the economic stability of the country.
The RMI urgently needs to set-up “strong policy frameworks” before issuing a digital currency. The country has only one domestic commercial bank and it stands at risk of losing its banking relationship with another bank in the US.
“In the absence of adequate risk mitigating measures, the issuance of a decentralized digital currency as a second legal tender would not only increase macroeconomic and financial integrity risks but elevate the risk of losing the last U.S. dollar CBR.”
The ‘Sovereign’ Currency
Marshall Island is partnering with an Israeli financial technology startup, Neema, to create and issue SOV. The hard cap on SOV will be at 24 million tokens to prevent inflation within the country. An ICO will be issued to bring the cryptocurrency to the masses. RMI hopes to raise a lot funds, following the footsteps of Venezuela. The country raised $735 million in its ICO for Petro.
In order to resolve numerous scams that anonymity has caused in the crypto market, the Marshall Islands government requires its investors to identify themselves on the blockchain network. The tokens will be split between the government and the Israeli startup. The residents will receive 2.4 million SOVs and six million SOVs will go to international investors.
The Way Forward
With the growing market, one can say that cryptocurrencies are the currencies of the future. Governments of multiple countries such as China, Estonia and Iran are discussing plans of their own digital currencies. Venezuela has already come up with ‘Petro’, a cryptocurrency which is backed by oil.
On the other hand, the Government of Marshall Islands is definitely feeling the heat from threats of financial aids being cut. President, Dr. Hilda Cathy Heine, is facing political attacks due to the same. These threats may temporarily delay the launch. Eight senators have fiercely opposed the initiative by submitting a motion of no confidence. Still, the country remains hopeful.