A representative of the International Monetary Fund said the Marshall Islands 'digital national currency currently poses a risk to the islands' financial stability.
Following a consultation in March, International Monetary Fund (IMF) representative Yong Sarah Zhou said that issuing the Marshall Islands digital currency, known as SOV, as legal tender would increase "risks to macroeconomic, financial stability and financial integrity." the islands. Zhou said the Republic of the Marshall Islands (RMI) measures to contain COVID-19 may have been "quick and strong" but have also hurt the local economy.
"The issuance of the SOV could jeopardize the RMI's last USD-equivalent banking relationship," said Zhou. "This, coupled with the fight against money laundering and the fight against the financing of terrorism risks (including those linked to the SOV), could disrupt external aid and other key financial flows and place significant economic detriment."
She added that the “prudent approach” already in place towards the SOV was justified as the “potential costs of the SOV issue are likely to outweigh the expected benefits”. According to the IMF representative, the RMI's gross domestic product declined more than 3% in fiscal 2020 and is expected to decline another 1.5% this fiscal year, with the local economy possibly recovering in 2022.
"The legal, regulatory and institutional framework of the RMI is not yet ready to take into account the SOV emission and manage the associated risks."
Government officials first announced that the RMI would look into creating a digital currency in 2018 that could be used as legal tender alongside the US dollar – although the Marshall Islands are a sovereign state, they are also an associated state with the US June, a Crypto advisor to the islands said the RMI is conducting an 18-month trial of "preSOV", a token that can later be converted to SOV.
Central bank digital currencies have had some success in areas spread across multiple islands. For example, the Bahamas introduced their digital currency, the Sand Dollar, in October to achieve greater financial inclusion within the archipelago nation of more than 700 islands. There are more than 58,000 people in the RMI, spread across 29 atolls and 5 islands, 24 of which are inhabited.