Coindesk Logo

IMF Advises Against Crypto as Legal Tender in Marshall Islands Report

IMF Advises Against Crypto as Legal Tender in Marshall Islands Report

IMF Advises Against Crypto as Legal Tender in Marshall Islands Report

The IMF says the Republic of the Marshall Islands should reconsider introducing a cryptocurrency as a second legal tender over perceived risks.

The IMF says the Republic of the Marshall Islands should reconsider introducing a cryptocurrency as a second legal tender over perceived risks.

The IMF says the Republic of the Marshall Islands should reconsider introducing a cryptocurrency as a second legal tender over perceived risks.

AccessTimeIconSep 11, 2018, 9:30 AM
Updated Aug 18, 2021, 9:49 PM

Presented By Icon

Election 2024 coverage presented by

Stand with crypto

The International Monetary Fund (IMF) has advised against the Republic of the Marshall Islands' plan to introduce a digital currency as a second legal tender alongside the U.S. dollar.

The Marshall Islands – a remote chain of islands in the central Pacific – passed a law on the issue in February, aiming for the planned "Sovereign" cryptocurrency to boost the local economy and counter the increasing risks of the nation becoming disconnected from the global financial system.

However, following a period of consultation with officials from the islands, the IMF published a paper on Monday advising against the move. According to the paper, the Marshall Islands economy is now "highly dependent" on external aid, as the country faces constant climate change and natural disasters.

The only domestic commercial bank in the country is now "at risk of losing its last U.S. dollar correspondent banking relationship (CBR) with a U.S.-based bank," due to tightened due diligence across financial institutions in the U.S.

The IMF argued that the introduction of a cryptocurrency as legal tender may backfire, if a lack of comprehensive anti-money laundering measures eventually leads to the U.S. bank cutting ties with the country.

The IMF continued:

"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."

Should that happen, "external aid and other flows could be disrupted, which would result in a significant drag on the economy," it argued.

While the IMF is specifically advising in this case on the social and monetary systems in the Marshall Islands, it perhaps offers a window into the thinking of the global monetary organization on whether cryptocurrencies should be elevated to the status of legal tender in the traditional financial system.

The paper also follows recent remarks made by IMF officials who argued that the rapid growth of crypto assets poses a threat to the demand for fiat currencies.

As such, they argued that central banks should raise their game, adopting desirable features of cryptocurrencies to better compete with the nascent technology – a move described as "fight fire with fire" by the IMF chief Christine Lagarde.

IMF image via Shutterstock

Disclosure

Please note that our privacy policy, terms of use, cookies, and do not sell my personal information have been updated.

CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. CoinDesk has adopted a set of principles aimed at ensuring the integrity, editorial independence and freedom from bias of its publications. CoinDesk is part of the Bullish group, which owns and invests in digital asset businesses and digital assets. CoinDesk employees, including journalists, may receive Bullish group equity-based compensation. Bullish was incubated by technology investor Block.one.


Learn more about Consensus 2024, CoinDesk's longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to consensus.coindesk.com to register and buy your pass now.