The International Monetary Fund (IMF), a global financial organization run by 189 countries, is against the proposal of the Marshall Islands to launch a sovereign digital currency by adopting crypto.
As early as September 10, the IMF criticized the finalized plans of the Marshall Islands of creating a national cryptocurrency, citing potential money laundering, financial integrity, and macroeconomic risks.
“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.”
According to the IMF, the Marshall Islands is largely dependent on external aids offered by major economies like the US. If the government pursues its proposal to launch a national cryptocurrency, the IMF suggests that many countries could cut financial aid that is currently being offered to the Marshall Islands.
In May, the Marshall Islands initially disclosed its plans to eliminate its dependence on the US dollar and switch to a national cryptocurrency.
At the time, David Paul, minister-in-assistance to the president of the Marshall Islands, said that as a nation, the Marshall Islands have the right and authority to launch a national currency regardless of the form of the currency.
“As a country, we reserve the right to issue a currency in whatever form it is, whether in digital or fiat form,” Paul said.
IMF has publicly expressed concerns regarding the national cryptocurrency of the Marshall Islands as it fears that the currency will be manipulated by criminals, crime syndicates, and businesses running fraudulent operations.
However, as demonstrated by several studies including economist Richard Wright’s “Less Cash, Less Crime: Evidence from the Electronic Benefit Transfer Program,” physical forms of money like cash are significantly overutilized by criminals than electronic alternatives, because by nature, cash is anonymous.
“It has been long recognized that cash plays a critical role in fueling street crime due to its liquidity and transactional anonymity. In poor neighborhoods where street offenses are concentrated, a significant source of circulating cash stems from public assistance or welfare payments,” the study read.
As such, the basis of the claim of the IMF that the creation of a national cryptocurrency by the Marshall Islands should be prevented due to the possibility of money laundering can be questioned, given that the effect of cash on enabling criminal activities is well documented.
The threat to cut financial aid to the Marshall Islands is working. Earlier this week, Dr. Hilda Cathy Heine, President of the Marshall Islands, faced political attacks due to the proposal of the government to pursue the development of a national cryptocurrency.
Political pressure could force the Heine administration to lay off the plans to launch a digital asset, at least temporarily. Eight senators in the Marshall Islands have already submitted a motion of no confidence, fiercely opposing the initiative set forth by President Heine.