The Republic of the Marshall Islands will move forward with its plan to introduce its own cryptocurrency, despite a vote of no confidence against President Hilda Heine’s support of the venture, according to reports on Tuesday.
— The Independent (@Independent) November 13, 2018
A ‘Sovereign’ Crypto Nation
The Pacific Island nation intends to introduce a cryptocurrency called the Sovereign (SOV), to be used as a form of legal tender alongside the U.S. dollar, according to the Independent. The plan led eight senators of the Marshallese government to accuse President Heine of damaging their country’s image by advocating for the cryptocurrency and called for a vote of no confidence against her. Heine survived it by one vote.
The country’s Finance Minister Brenson S. Wase confirmed the decision to move forward with the proposal, according to the Nikkei Asian Review. The publication added that concerns over the plan being backed by China motivated the vote against Heine, as support from the Chinese government may be interpreted as undermining Marshallese authority.
The government aims to take the ICO route to fund the new currency, pursuing half the money necessary to get it off the ground from foreign investors. Once the goal is reached, the remainder will reportedly either be kept in a government trust or distributed to the country’s citizens.
Already Approved as Legal Tender
Minister-in-assistance to President Heine, David Paul, says the SOV’s status as legal tender equal to the U.S. dollar has already been approved, paving the way for its regulation. An official statement from the Marshallese government reads:
“This creates legal certainty for its use, because all jurisdictions have laws in place for dealing with legal tender, whereas private cryptocurrencies are dealt with differently in different jurisdictions.”
Despite the potential risks of issuing the SOV, which include the loss of the Marshall Islands’ correspondent banking relationship (CBR) with the dollar according to the IMF, the Marshallese government does appear to be taking the correct steps to deal with such liabilities. A recent report by the IMF that advised against the issuance of a government crypto stated:
“They have created a high-ranking committee to examine all the risks, including those raised by the IMF and the US Treasury, and those discussed during the public hearings on the legislation.”
Israeli startup Neema reportedly convinced the Marshallese government it could profit from introducing its own cryptocurrency, spurring the SOV’s development. The official website of the currency distinguishes it to be more digital fiat than crypto, asserting it will meet the highest regulatory standards for money. The site claims the currency will serve as a bridge between fiat and cryptocurrencies while opening up new opportunities for smart contracts and financial products written on-blockchain.
The SOV will allegedly get around money laundering concerns via built-in know your customer (KYC) technology called the Yoke Protocol only allowing transfers between wallets that have been identified with a token. The protocol will also allow users to establish that transferred funds are from verified users.
Twenty-four million units of the currency will be minted at launch, with an annual four percent projected growth rate, according to the RMI’s Sovereign Currency Act. Following the launch and completion of the ICO, vendors, and citizens will be able to conduct business with the SOV via an app.
The IMF’s report states that the issuance of the SOV is likely still a few years away, as it must first comply with Financial Action Task Force (FATF) regulations and the U.S. government must also approve the SOV’s use in transactions within the U.S. financial system.
Cover Photo by Ishan @seefromthesky on Unsplash