Hilda Heine, the president of the Republic of Marshall Islands (RMI), is fighting for her political career after she allegedly defied the International Monetary Fund’s (IMF) advice and went ahead with the introduction of a new digital currency that the IMF considers to be a threat to the country’s financial stability.
The Guardian reported on Nov 6th that Heine, the only female leader in the Islands is facing a vote-of-no-confidence on Nov. 12th. The vote-of-no-confidence was introduced by eight (out of 33) senators on Nov. 6th.
The IMF Is Not a Fan of the Digital Currency
The IMF, the world’s largest financial organization, released a report on Sept. 12th advising the country against issuing the planned digital currency because it would disrupt the country’s financial stability.
The Marshall Islands uses the USD as its national currency and wanted to introduce the SOVEREIGN or SOV cryptocurrency as a reserve currency.
In IMF’s view:
“SOV issuance in the currently planned form and in the absence of a monetary policy framework could also result in monetary instability and pose significant challenges to macroeconomic management.”
Heine firmly stood by the country’s plans to issue the SOV, stating that her country must “advance into the future.”
She said that the SOV is an alternate way for the tiny country to become financially self-sufficient. The female leader stated that:
“I don’t see any indication of us being harmed … this is not an illicit activity. This is not illegal and our laws will not be tarnished.”
The proposed digital currency was supposed to be issued by an Israeli startup, which according to the IMF, lacks experience in the financial sector.
The SOV raises several risks, and the report states that:
“Unless strong AML/CFT measures are implemented, the issuance of the SOV, as contemplated, will elevate the already high risks of losing the last U.S. dollar [Correspondent Banking Relationship] CBR.”
The situation does not look very good for the RMI. The country depends on the foreign aid and issuing the digital currency could compromise its access to U.S grants. In the last decade, foreign grants have contributed close to 35 percent of the country’s GDP.
The IMF report further says that the Israeli startup will receive half of the issued tokens. Part of the report read:
“In addition, the dual role of issuer and private investor bestowed to that company creates a significant conflict of interest.”
The country’s limited telecommunications infrastructure is a big factor that will hinder the SOV from becoming a widely used medium of exchange.
The IMF is generally not keen on supporting Bitcoin and cryptocurrencies. Dong He, a director with the IMF, released a report in June in which he acknowledged that the demand for cryptocurrencies would one day outweigh that for fiat currencies.