The Marshall Islands will launch the world’s first legal tender cryptocurrency after a law passed by parliament went unopposed by an official council.
The nuclear-ravaged nation has partnered with Israeli company Neema to issue 24 million units of the Sovereign (SOV) digital currency. It will cap the number to prevent inflation.
The move follows Venezuela’s launch of the Petro cryptocurrency in February. Investors supposedly shelled out $735 million (€600 million) for the oil-backed, sanction-skirting currency, according to President Nicolas Maduro.
Unlike the Petro, the SOV will be recognized in law as legal tender, holding equal status as the US dollar, which is the Pacific island nation’s current currency.
President Hilda Heine said in a statement:
“This is a historic moment for our people, finally issuing and using our own currency, alongside the USD. It is another step of manifesting our national liberty.”
The government hopes to raise funds by selling half of the cryptocurrency’s initial allocation to foreign investors. The remainder will either be kept in a governmental trust fund or distributed to citizens of the Marshall Islands.
A date for the initial coin offering (ICO) is yet to be announced but minister-in-assistance to the president David Paul said that its legal tender status has already been approved by the country’s parliament.
However, it seems that the International Monetary Fund (IMF), a global financial organization run by 189 countries, is against the proposal of the Marshall Islands to launch a sovereign digital currency by adopting crypto.
The IMF already has criticized the finalized plans of the Marshall Islands of creating a national cryptocurrency, citing potential money laundering, financial integrity, and macroeconomic risks.
In a 58-page report, the IMF warns of US banks refusing to work with Marshall Islands businesses should the national crypto be adopted. To all intents and purposes, this would cut off banking services to the islands’ 53,000 residents. Given that the proposed national crypto is to be launched via a modest $30m initial coin offering plus an airdrop to local residents, the IMF’s stance seems both hyperbolic and draconian.
The report warns:
“The potential benefits from [digital currency] 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.”
It also says:
“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.”
Roughly 70,000 people live in the Marshall Islands, a collection of more than 1,100 islands and islets in the Pacific. Some proceeds from the crypto offering will be used to provide health care to locals affected by U.S. nuclear tests conducted in the area decades ago.