The IMF believes that a nation without a central bank and “capacity constraints” should avoid entering the cryptocurrency market.
The Republic of the Marshall Islands (RMI) and the International Monetary Fund (IMF) recently wrapped up their yearly discussion. The country’s gross domestic product (GDP) is anticipated to expand this year, according to the IMF, signaling a recovery from COVID-19’s effects and the decline of its fishing industry. Decentralized autonomous organizations (DAOs) and climate change, however, are persistent risks to the economic stability of the RMI.
The RMI is a group of more than a thousand islands in the Central Pacific. The country, which has a population of about 56,000 and an average elevation of barely six feet above sea level, confronts severe challenges as a result of rising sea levels brought on by climate change. Additionally, the RMI experienced a 4.5% drop in GDP in 2022, mainly attributed to the sale of a single fishing boat.
The RMI has to implement budgetary changes, according to the IMF, particularly as it gets ready for a new Compact of Free Association with the US that will go into effect in 2024. The group has also expressed worries about the threats that RMI fintech efforts pose to the integrity of the financial system.
A law recognizing DAOs as legal entities and enabling their incorporation as limited liability corporations inside the RMI’s borders was passed in 2022. The IMF is uneasy about these actions and has voiced doubts about the RMI’s ability to appropriately oversee and control these activities.
The IMF has advised the RMI to put a stop to DAO registration and first set up a monetary authority in order to strengthen its regulatory capacities. It is yet unknown if any DAOs have so far been registered in the RMI.
Furthermore, due to worries about its “offshore sector” and fintech industry in regard to anti-money laundering and counter-terrorist financing, the RMI runs the risk of losing its final U.S. dollar correspondent account. Derisking, or losing correspondent accounts, is controversial from the standpoint of social justice and can result in exclusion from the global economy.
Additionally, the IMF has encouraged the RMI to abolish the SOV, its central bank digital currency (CBDC). The IMF has continually advised the RMI against moving through with its CBDC project since its 2021 consultation, despite the fact that it usually favors CBDCs, citing the country’s lack of readiness. The SOV has not yet been launched as of yet.
The proposals made by the IMF underline the difficulties the RMI has in maintaining economic stability, financial integrity, and regulatory control. For the RMI to develop sustainably and to be able to negotiate the changing fintech and digital currency world, these issues must be addressed.