The Marshall Islands has issued a national blockchain-based currency in a bid to “finally acquire monetary independence in a way that reflects Marshallese values.”
The issuance of the Marshallese sovereign (SOV) was announced in an essay by The Honorable David Paul — Minister In-Assistance to the President and Environment of the Marshall Islands — published by Coindesk on Sept. 4.
“Connected to the global financial system on its own terms”
The Marshall Islands had passed a Sovereign Currency Act in 2018, declaring its intent to release its new national digital currency. The nation, which has been independent since 1979, has until now been using the United States dollar as the official currency for all payments, debts, public charges, taxes and dues.
The state’s reliance on U.S. grants is estimated to total around $70 million each year, as CryptoNewspeople reported earlier this year.
In his essay, Minister Paul outlines that the Islands’ choice to issue a second legal tender based on blockchain technology was based on a conviction that centralized solutions are not workable in a country of a little over 50,000 people spread across over 1,000 Pacific islands.
Beyond decentralization, blockchain offers the country the possibility of having compliance “baked into the currency protocol itself,” — in the Minister’s words — “while maintaining privacy for individuals.”
The technology, he notes, allows the state to automate much of its compliance obligations, lowering the costs associated with existing systems and thus helping it take a more proactive role in the global fight against money laundering and financing of terrorism.
Approved entities — such as banks or exchanges — will be tasked with verifying the identity of SOV users, thereby closing anonymity loopholes. Yet, the Minister writes, the country will aim to protect financial privacy as far as possible, arguing that:
“It is crucial that individual users should have a reasonable expectation of privacy – specifically, the ability to choose when to disclose your information, what exactly to share, and with whom.”
Governments need not treat money as a “limitless resource”
Minister Paul outlines that the SOV will have a fixed, tamper-proof money supply and that its growth will be predetermined at 4% per year. He argues that:
“We chose to create a fixed money supply with fixed growth because fiat currencies can be remarkably unstable. […] The policies of major central banks are not reassuring, as the gold and bitcoin prices attest. We as governments need to take a more sustainable approach to money, and not treat it as a limitless resource.”
Other aspects of the essay point to the fact that fiat remittance services are currently extremely expensive for citizens, something that frictionless blockchain-based systems can help mitigate.
As recently reported, China is now readying itself to launch a central bank-backed, blockchain-based digital currency for use in retail scenarios.