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Sovereign (SOV), Marshall Islands National Cryptocurrency Project, Deemed Risky by The IMF

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.

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IMF Leader, Christine Lagarde, Said Cryptocurrencies Will Affect The Way People Pay Bills Or Invest

The official blog of the International Monetary Fund (IMF) changed its perspective on cryptocurrencies from “the dark side of cryptocurrencies”, as published in an article in mid-March, to “the promise cryptocurrency holds”, in a note signed by Christine Lagarde, the IMF’s leader, recently.

According to the French lawyer, Christine Lagarde, currently the leader of the IMF, “with more than 1,600 cryptocurrencies in circulation, it is inevitable that many will not survive the process of creative destruction”, but “just as some of the technologies born out of the computer bubble have changed our lives, the cryptocurrencies that survive could significantly influence the way we save, invest and pay our bills.”

“That’s why the authorities should be open-minded and develop an impartial regulatory framework that reduces risks while allowing the creative process to bear fruit,” Lagarde added.

The IMF changed its point of view regarding cryptocurrencies and Christine Lagarde’s statements prove it

With regard to the benefits provided by cryptocurrencies, Lagarde was remarkably positive, admitting that cryptocurrencies make quick and inexpensive financial transactions possible.”

The IMF director general added that the technology on which cryptocurrencies are based, known as distributed general ledger, could facilitate a more efficient functioning of financial markets through the execution of smart contracts.

Christine Lagarde also highlighted the capacity for encrypted storage of important records in order to protect the property rights, strengthen the market confidence, or promote investments.

The IMF’s leader admitted that smart contracts “could eliminate the need for some intermediaries” but in her opinion “the ‘FinTech’ revolution will not eliminate the need for trusted intermediaries such as brokers and bankers.”

In short, Lagarde believes that cryptocurrencies “will propel the business world to a better balance between centralized entities and decentralized applications”, thus proving that IMF’s views regarding the cryptocurrencies market have changed radically in just a few months.

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Crypto Finance News

Soft Cryptocurrencies Regulations Are The Solutions Proposed By The IMF Director, Christine Lagarde

The boss of the IMF believes that crypto coins and blockchain technology could lead to a “more efficient and potentially more robust” financial system but only if soft cryptocurrencies regulations will be adopted.

A month ago, Christine Lagarde warned, in a blog note, about the “dark side” of cryptocurrencies, citing their high volatility and the fact that they can be used for money laundering or terrorist financing. But, as the boss of the IMF prepares to welcome in the Washington political leaders and central bankers for the traditional spring meetings, the former French Minister of Economy split Monday a new blog note where she shared another point of view, now recognizing the crypto and blockchain technology value but only under the conditions of soft regulations.

Undeniable security and speed

Drawing a parallel with the first financial bubble in history, the Tulipomania in Holland in the 17th century, Christine Lagarde first points out the following:

With more than 1,600 cryptocurrencies in circulation, it seems inevitable that many of them will not survive to the process of creative destruction. But those who take root will “have an impact on the way we put money aside, invest and pay our bills.

Christine Lagarde

Christine Lagarde praises, in particular, the speed and the low-cost of the financial transactions conducted via cryptocurrencies blockchain.

The IMF leader also emphasizes the security of transactions enabled by the blockchain technology, stressing out, again, that the cryptocurrencies and blockchain technology could have applicability for governments but only under soft cryptocurrencies regulations.

A more balanced ecosystem

Christine Lagarde hopes that decentralized services stimulated by cryptocurrencies will lead to a diversification of the global financial landscape and ultimately, they will create a more balanced ecosystem, which will be, at the same time more efficient and more secure.

However, the IMF director remains vigilant, saying that cryptocurrencies must still “win the trust and support of consumers and authorities,” which, according to her, is only possible by the implementation of soft cryptocurrencies regulations a better definition of the blockchain role in the financial sector.

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