The Sovereign (SOV) digital currency looks set to become the first decentralized national digital currency. It could be used in the Marshall Islands on an equal footing with the US dollar. Such cryptocurrency as legal tender, even in a small state, is a larger step on the path to crypto-adoption.
The Marshall Islands says it’s the first country ever to accept a cryptocurrency as national legal tender. It passed a key bill this week for SOV’s creation. According to reports by the publication Haaretz the plans had been hotly debated by Marshall Islands leaders for days.
Concerns were raised over the amount of SOV which would be allocated to SOV’s creators Neema. These were combatted with the prospect of a cash injection into the Marshall Islands via investment in the new currency.
Marshall Islands President Hilda Heine says:
This is a historic moment for our people, finally issuing and using our own currency, alongside the USD…It is another step of manifesting our national liberty.”
As part of the plans, 2.4 million SOV will be issued to the Marshallese people. The launch could raise $30 million, around half of this value would go to the startup Neema.
The International Monetary Fund (IMF) has criticized the plans with a number of concerns including the risk of money laundering and that the Marshall Islands could lose its only corresponding banking relationship (CBR) with the US. The IMF says:
In the absence of adequate risk mitigating measures, the issuance of a decentralized digital currency as a second legal tender would not only increase macroeconomic and financial integrity risks but elevate the risk of losing the last U.S. dollar CBR.
Though the IMF seems unable to prevent the issuance of the SOV the Marshall Islands could see objection lead to the retraction of some of the international aid it relies on.
The US contributes around $70 million annually in assistance. And, the US Treasury Department has raised its concerns including the illicit implications of anonymity. That said, the SOV will require users to register their identities, so the coin will not follow the pseudo-anonymous nature of bitcoin.
Neema’s co-owner Barak Ben Ezer says he made a list of countries potentially open to a cryptocurrency as legal tender. The entrepreneur told TheMarker he excluded countries like Sweden, looking for smaller countries which vote alongside Israel in the United Nations:
The smaller that a country is, the easier it would be for it to adopt such a currency. I added another parameter: that the country not have a currency of its own, which is how I got to the Marshall Islands.
Neema’s law firm Yigal Arnon & Co are reportedly helping the Marshall Islands central bank to create the legislation needed to operate its own currency. The firm’s Yuval Shalhevet says:
The rulers of the Marshall Islands had never dealt with monetary regulation. We helped write the law.
The Times of Israel reports that Neema is still working on the technology and logistics of the issue as well as answering US regulatory concerns. Ben Ezer confirms the launch of the SOV is planned for 2019. But only once “stakeholders are convinced” and “risks have been mitigated” he adds. The launch is further impacted by 2018’s crypto-winter:
We are working days and nights to prepare the foundations of the SOV initial coin offering, with the goal of being ready to launch once positive momentum is back to the markets
Ben Ezer said SOV buyers would be verified against the US Office of Foreign Asset Control to ensure legitimacy.
In January Swiss smart card wallet maker Tangem revealed it would be creating physical banknotes for the SOV. These “banknotes” are actually a smart card containing a blockchain-enabled microprocessor allowing users to carry cryptocurrencies in their pockets.
The positive market momentum sought by the Marshall Islands and Neema to launch a cryptocurrency as legal tender may be on the horizon. Some cryptocurrencies are surging. Bitcoin’s price is still relatively stable but analysts believe the recent success of other coins and an upcoming block reward “halving” could lead to a new “meteoric” bitcoin boom.