The Honorable David Paul is Minister In-Assistance to the President and Environment, Marshall Islands.
This essay is presented as a part of No Closing Bell, a series leading up to Invest: Asia 2019 focused on how the Asian crypto markets are interacting with and impacting global investors. To keep the conversation going in person, register for Invest: Asia 2019 coming up in Singapore on Sept. 11-12.
Since becoming an independent democratic nation in 1979, the Republic of the Marshall Islands has used the US dollar as money. Today we are progressing with our plan to issue a sovereign currency in digital form – using blockchain technology.
Last year, we passed the Sovereign Currency Act, declaring our intention to issue a new currency, the Marshallese sovereign (SOV), which we will use alongside the dollar. Issuing a currency is of course the prerogative of any sovereign nation, but what is unprecedented is that we have chosen to issue our sovereign currency using blockchain technology.
We made three key decisions when we chose to issue our currency. First, that the currency would be based on blockchain technology – this is vital for us in the Marshall Islands, for reasons I will outline below. Second, that the growth of our money supply would be predetermined and tamper proof. And, last but not least, that compliance would be baked into the currency protocol itself, while maintaining privacy for individuals.
The advent of blockchain technology has opened up a world of opportunity for small nations like ours. Relying on traditional fiat currency, the Marshall Islands has only fragile links to the wider world of international finance, and compliance is extremely resource intensive. Many of our citizens send or receive money using remittance services, paying fees of up to 10% per transaction. Even simple things like acquiring and installing ATMs become complicated when you’re in the middle of the Pacific Ocean!
But blockchain transactions are fast, simple, and cheap. Blockchain transactions are secure, because they’re replicated throughout a decentralized network. Most importantly, and despite its mathematical and technical complexity, blockchain is practically very simple. The only infrastructure needed for a blockchain-based digital currency is the network itself. We do not need to create a central bank and manage the printing and processing of paper money.
We chose to create a fixed money supply with fixed growth because fiat currencies can be remarkably unstable. For example, the Argentine peso recently fell 15% in a single day, while Venezuela's currency, for all intents and purposes, no longer functions at all. The policies of major central banks are not reassuring, as the gold and bitcoin prices attest. We as governments need to take a more sustainable approach to money, and not treat it as a limitless resource.
Our money supply will grow at a sustainable 4% each year, following Milton Friedman’s k% rule. New SOV will be automatically distributed to the currency holders and the decentralized entities securing the network. This means that we in government cannot modify the money supply, and we cannot manipulate the value of our currency by printing more money.
Finally, our currency must be internationally accepted. Post 9/11, money laundering and financing of terrorism are major threats that the global community is fighting together. But without our own currency, and beholden to existing systems, it is hard for us to contribute much to this fight beyond basic compliance. With a digital currency based on blockchain, we can automate much of the compliance burden and take a proactive role on the international stage.
Every individual using SOV must be identified by an approved verifier of their choice, such as a bank or an exchange. This will close the secrecy and anonymity loopholes exploited by criminals and terrorists. However, it is crucial that individual users should have a reasonable expectation of privacy – specifically, the ability to choose when to disclose your information, what exactly to share, and with whom. We are committed to providing this privacy with SOV.
The Marshall Islands are working closely with international regulatory bodies to ensure SOV meets all compliance requirements and can be fully integrated into the international financial ecosystem. In fact, SOV is being digitally engineered from the ground up to prevent misuse, unlike paper currencies.
For years, the Marshall Islands have been exploring ways to enhance its connectivity to the international financial system. By issuing a currency that is not physically embodied in cash, that can travel the globe instantly, and that is tamper-proof and completely secure, the Marshall Islands will finally be connected to the global financial system on its own terms.
It may seem surprising that the Republic of the Marshall Islands would be issuing a currency based on blockchain technology, but actually it’s just the opposite: the Marshallese people have lived with decentralized systems for hundreds of years. For us, a country of just over 50,000 people spread across more than 1,000 Pacific islands, centralized solutions aren’t just inefficient: they’re completely unworkable. Blockchain has given us the opportunity to finally acquire monetary independence in a way that reflects Marshallese values. We intend to grasp that opportunity, innovatively and responsibly.
Minister Paul will make an announcement around the Marshall Island’s sovereign issuance at Invest: Asia 2019.
Marshall Islands flag image via Shutterstock