In a report released recently, the International Monetary Fund (IMF) presents several arguments against the Marshall Islands government’s decision to create and issue a legal tender cryptocurrency, Sovereign (SOV), which was introduced in February of this year through a law passed by that nation’s parliament.
The IMF’s Asia-Pacific Department dedicates the report to an economic diagnosis of the Marshall Islands, from which it concludes that it expects growth “to remain robust, at 2.5 percent in the fiscal year 2018 and about 1.5 percent in the medium term, driven by increased spending on infrastructure.”
However, the IMF report highlights a factor that it qualifies as risky. Namely, the creation of the Sovereign (SOV) cryptocurrency, approved by the Parliament of the Marshall Islands.
“Issuing a decentralized digital currency as a second legal tender would increase macroeconomic and financial integrity risks, and raises the risk of losing the last US Dollar intermediation banking relationship,” stated the IMF.
IMF considered the Marshall Islands national cryptocurrency, Sovereign (SOV), as risky
According to the report, the Marshall Islands economy is “extremely dependent on foreign aid,” citing constant climate change and natural disasters as causes. But the existence of a single bank, the Bank of the Marshall Islands (BMI) is highlighted by the IMF as the most significant vulnerability associated with the Sovereign (SOV) cryptocurrency.
In the “Protecting Financial Stability” section of the report, the IMF delves into the risks of issuing a decentralized digital currency. It points out that a foreign private company, Neema, an Israeli company, with limited experience in the financial sector will be in charge of the Initial Coin Offering (ICO) totaling 24 million SOV, and that it will receive half of this. This dual character of issuer and investor is risky, according to the IMF.
The monetary fund points out that the issuance of the Marshall Islands national cryptocurrency, the Sovereign (SOV), unless strong anti-money laundering measures and anti-terrorist financing guidelines (AML/CFT) are implemented, “will increase the already high risks of losing the last correspondent bank relationship linked to the US dollar.”
The distribution of 10% of the SOV total amount to the population, planned after the ICO, is seen by the IMF as a source of monetary instability. Since it is legal tender, according to the IMF, this monetary issuance can be harmful to the government itself and to the banks, if it is used, for example, to pay taxes and debts.