The International Monetary Fund has warned the Republic of the Marshall Islands about the crypto issuance risks. The warning follows the earlier announcement from the RMI about its intention to adopt cryptocurrency as the second legal tender in the country.
12 September, AtoZ Markets – The International Monetary Fund (IMF) cautioned the Republic of the Marshall Islands (RMI) regarding the risks of adopting a cryptocurrency as a second legal tender.
IMF Warns Marshall Islands About Crypto Issuance Risks
The official press release from the IMF states that introduction of digital currency as an official form of legal tender might pose some risks to the country’s financial integrity. The US-based agency supported by the United Nations writes in the press release addressing the government of the Republic of the Marshall Islands:
“Directors encouraged the authorities to be cautious about issuing a decentralized digital currency as a second legal tender and carefully consider the macroeconomic and financial stability risks. They noted that the potential benefits from revenue gains could be considerably smaller than the potential costs arising from economic, reputational, and governance risks.”
The IMF has also added that the planned move from the RMI’s government might pose risks to the relationships with foreign banks.
By adopting cryptocurrency as a second official currency after the US dollar, the Bank of Marshall Islands (BOMI) can elevate the risk of losing “the last U.S. dollar correspondent banking relationship (CBR)” due to the heightened diligence by the banks in the US, according to the IMF. BOMI is the only commercial bank in RMI.
RMI needs to Address Risks
Considering that Marshall Islands are “highly dependent on receiving and spending U.S. grants,” the organization notes that the loss of important banking relationships could potentially harm the economy of the country:
“Directors commended the progress made in addressing correspondent banking relations risks. They emphasized the need for additional steps to strengthen the AML/CFT framework, including the successful completion of the national risk assessment and the subsequent development of an action plan. In addition, they recommended that the AML/CFT framework should be compliant with the FATF standards and cover the offshore and maritime registries. Directors also called for further steps to enhance the banking supervision framework.”
In addition, the IMF urged the authorities of Marshall Islands to review its decision regarding the issuance of a digital currency until the government will be able to provide and execute “strong policy frameworks” concerning economic, reputational, AML/CFT, and governance risks.
Marshall Islands’ Cryptocurrency
Earlier this February, the Republic of Marshall Islands has informed the public about its plans to release its own cryptocurrency. The officials are planning to name the currency the Sovereign (SOV). That time, The house speaker and senator Kenneth Kedi and David Paul, minister-in-assistance to the president of the Marshall Islands have shared some insights into the matter.
Once the Sovereign will be released, it will be operating along with the US dollar across the country. It is known that the Sovereign will be distributed via an Initial Coin Offering (ICO). The latter will need to be approved by the council. However, the rejection is “unlikely,” according to Mr. Kedi.
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