The Marshall Islands, a chain of Pacific islands whose legal currency is the US dollar recently passed a law that would allow the residents of the small territory to use a digital currency ‘Sovereign‘ to supplement the current use of the dollar as legal tender.
However, this is a move that the International Monetary Fund (IMF) does not agree with.
The original plan of the Marshall Islands was to introduce a new sovereign cryptocurrency to hopefully reconnect the islands with the global economy. The move would also help boost the local economy. The IMF does not agree with this move and discouraged against moving forward with this plan.
After a period of consultation with local officials, the IMF concluded that the small territory is very dependent on foreign aid. This is because of the constant barrage of natural disasters and the ongoing effects of climate change on the local geography. It does not help that the islands' last domestic bank is about to lose its dollar connection with a US bank. This is because of tightening financial regulations in the United States and if Marshall Islands lose this link, the local economy would be devastated.
In a statement, the IMF said
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
IMF Not A Major Supporter Of Crypto
The main worry of the IMF is that the introduction of a cryptocurrency would further increase the likelihood that the bank would cut ties to Marshall Islands. This is the opposite of what the local government wants. If the cryptocurrency was introduced and no strict anti-money laundering regulations get implemented, then the IMF fears that the US bank would just close its connection to the local economy to be safe.
While the IMF's position on cryptocurrencies is mainly regarding Marshall Islands, it does give people an idea of what the IMF is thinking about when it comes to elevating cryptocurrencies into legal tender. This advice follows the recent remarks by IMF officials that cryptocurrencies can potentially threaten the demand for fiat currencies. The agency wants central banks to learn lessons from cryptocurrencies to improve the central features of their fiat currencies.
