IMF warns Marshall Islands of DAOs, CBDC, and climate change

By: Michael Wilson

IMF warns Marshall Islands of DAOs, CBDC, and climate change

July 12, 2023 6:21 AM

For a country with "capacity constraints" and no central bank, the International Monetary Fund (IMF) says entering the world of digital currency is not a wise idea.


Annual discussions between the Republic of the Marshall Islands (RMI) and the International Monetary Fund (IMF) are now complete→. According to the IMF, the country is anticipated to witness GDP growth this year as it recovers from COVID-19 and the loss of its fishing industry. But there are still dangers, such as global warming and DAOs (decentralized autonomous organizations). 


More than a thousand islands make up the RMI, which is located in the Central Pacific. It has a population of roughly 56,000 people and an average height of 6 feet above the sea level. With a GDP of $261 million in 2022, the sale of an individual fishing boat resulted in a 4.5% decline in GDP that year.

 


The RMI needs fiscal reforms before the new Treaty of Free Association between the US takes effect in 2024, the IMF warned, adding that fintech projects "pose risks to the financial stability of the RMI."


IMF concerns were exacerbated once the RMI legislated DAOs as legal organizations and permitted them to operate as limited liability organizations in 2022. It stated:


"The adoption of the DAO Act and the decision to begin DAO registration are particularly troubling given limited resources and questions about the authorities' ability to properly govern and supervise these initiatives."


The IMF encouraged the RMI to suspend DAO registration. According to the IMF, the country ought to initially establish a monetary authority. It is unclear whether any DAOs have yet been registered with the RMI.


The country is also on the verge of losing its final US dollar correspondent account due to worries about its fintech and "offshore sector" in terms of anti-money laundering and counter-terrorism financing. Derisking, or the loss of correspondent accounts, isolates a country from the world economy and is controversial from the standpoint of social justice.


The IMF also encouraged the RMI to revoke its central bank digital currency (CBDC), the SOV. While the IMF is typically supportive of CBDCs, it urged the RMI to abandon its CBDC program in its 2021 consultation, claiming that the country was ill-equipped for it. The SOV has yet to take flight.