IMF Mission apprehensive of Marshall Island's CBDC
Updated: Apr 9, 2021
The hesitation from regulated bodies about CBDCs is well documented. Recently, Ms. Yong Sarah Zhou from the IMF reported that issuing the long planned digital currency for the Marshall Islands could "raise risks to macroeconomic and financial stability as well as financial integrity".
The Marshall Islands was experiencing strong economic growth prior to the pandemic and despite effective containment measures the Islands have had severe economic impacts from COVID-19. The Marshall Islands had recorded plans to issue the sovereign currency (SOV) as a second legal tender (alongside the USD) as early as 2018. However, Zhou highlighted that launching a SOV could exacerbate an uncertain economic outlook.
A main concern in the report was the hesitation of international partners. Specifically, Zhou mentioned that issuing the SOV "could jeopardize the [Marshall Islands] last standing USD banking relationship" and that the AML/CTF risks could "disrupt external aid and other important financial flows." The report echoed that as a result
The [Marshall Island's] legal, regulatory, and institutional framework is not yet ready to accommodate the SOV issuance and manage associated risks. The team’s assessment, therefore, remains that the potential cost of the SOV issuance will likely outweigh the expected benefits.
The Marshall Islands now seems hesitant on issuing the SOV; a position likely to be revisited when the economic impacts of COVID-19 become more clear. However, it is interesting that a main concern of launching the SVO was the international, and specifically, US response when that country have recently announced its own intentions to explore a CBDC. Additionally, Mastercard, Visa and the Bahamian Sand Dollar have shown that these unparticularised risks are not stifling other island nations from adopting and expanding their own CBDCs.