Governments are not fond of cryptos, ça va sans dire.
Every crypto enthusiast knows well that big nations as the USA or Japan are trying to regulate the cryptomarket, undeniably growing in power and popularity, but that also keep a certain distance from fully implementing cryptos in the national or global finance.
Libra is a clear example of this: when Facebook started the project the fear that its cryptocurrency could undermine the financial order led to the slowdown of the project. It doesn’t matter whether it is a stablecoin and, thus, has a certain dependence on fiat money. States are not willing to have such a strong financial competition.
Nonetheless, many believe that one day the biggest nations on the global chessboard might finally embrace the cryptocommunity and start looking at virtual money as an opportunity rather than a threat.
For instance, China, one of the starkest opponents to cryptocurrency, has lately changed its mind and might even launch its own crypto some time in the near future.
However, there is one nation that, despite all the odds, is already actively trying to implement a state-backed, official cryptocurrency - the first of a kind in the history of cryptos. And it is not any of the financial giants you might think of.
The Republic of the Marshall Islands (RMI), a tiny state of slightly over 53,000 people spread across 24 inhabited atolls in the middle of the Pacific Ocean, has declared its intentions to issue a new currency, the Marshallese Sovereign (SOV, in short), which will be used alongside the US Dollar, the current currency of the country.
The project, led by David Paul, Minster In-Assistance to the President, is aimed at greater involvement of the Islands to the global economy. “The advent of blockchain technology has opened up a world of opportunity for small nations like ours. Relying on traditional fiat currency, the Marshall Islands has only fragile links to the wider world of international finance, and compliance is extremely resource intensive,” Mr. Paul has stated in an essay published on CoinDesk.
“Many of our citizens send or receive money using remittance services, paying fees of up to 10% per transaction,” while “blockchain transactions are fast, simple, and cheap.” But most importantly “they’re replicated throughout a decentralized network.”
Indeed, the step toward the development towards a crypto would bring two main advantages to the economy of the Marshall Islands and its people: 1) it would allow a larger freedom for a state which is dependant on the USD and the monetary policies of the US; and 2) it will provide a stronger infrastructure for a state the citizens of which live on several, scattered islands.
The outline of the SOV seems to be extremely interesting: it is an actual crypto, rather than a stablecoin, since it is not pegged to any other fiat currency. However, although decentralisation is a main goal, the currency is backed by a central, political authority, granting stability and legal compliance, which cryptos don’t always enjoy. For instance, it is in the development plan that the SOV will follow Milton Friedman’s k% rule, with a fixed growth of 4% every year:
“We chose to create a fixed money supply with fixed growth because fiat currencies can be remarkably unstable. For example, the Argentine peso recently fell 15% in a single day, while Venezuela’s currency, for all intents and purposes, no longer functions at all. [...] We as governments need to take a more sustainable approach to money, and not treat it as a limitless resource.”
The SOV will start rolling out in 2021, with an initial issuance of tokens redistributed between the government and a fund for the development of the SOV itself. Of the initial issuance, the government will retain 80% to redistribute them between the citizens and the SOV Development Fund. While the other 20% will be halved: 10% to be put on the market and 10% to be used “to build and maintain the SOV technology in the short and long term.''
The announcement and the issuance year are not random: As we saw above, the Republic of the Marshall Islands is heavily dependant on the US. Military bases employ many citizens of the Islands and the struggle with rising sea levels is mainly funded by American foreign aid.
However, the current agreements foresee the end of financial support by 2023. The Marshall Islands is, thus, faced with a choice: it could still remain dependant on a foreign country or gain economic sovereignty, alongside actual political independence - from a country that conducted tens of nuclear experiments and detonations on its territory, with effects still suffered by the population.
Obviously, the US did not let this happen smoothly and happily. After the passage of the bill in the Marshallese Nitijela (Parliament) for the creation of the currency (in February 2018), the political giant understood how committed was the RMI in the project.
On April 11 2018, the US ambassador expressed her country’s concern and disappointment for not having been consulted before the final decision of the Nitijela. A couple of weeks later, Paul and the Minister of Finance Brenson Wase - together with other officials - were called to testify before the US Treasury. There is no need to say how the Treasury did not approve of the project and raised many concerns on money laundering and terrorism funding.
The International Monetary Fund also expressed its concerns on terrorism as well, but also on the success of the project: if the project should fly, it could pose the Marshall Islands in an embarassing situation where other states and financial istitutions - as the First Hawaiian Bank, the only bank to have close relations with the nation - would cut them off extrenal aid.
Although the international community managed to slow the project down, the essay published on CoinDesk by Mr. Paul just over a week ago shows how the Islands has not given up the will to carry out the project.
This will definitely become a major debate in the cryptocommunity and in global summits, as well as a major concern for financial giants as the US or the IMF.
However, we should remember that we are dealing with the future of an island country that struggles with poor financial ties and with raising water levels - which could drown the entire nation!
Action is required. And for a nation that has a very long history of decentralised economy and community, a blockchain-based, fast, and secure coin might be of use, as worrying as it is for the conservative, traditional finance.