IMF expresses misgivings over Marshall Islands’ plan for ‘Sovereign’ cryptocurrency
A qualm of disbelief was expressed by the International Monetary Fund (IMF) regarding the plan to offer a national cryptocurrency by the Marshall Islands.
According to a recent report by the IMF “the issuance of a decentralized digital currency as a second legal tender would increase macroeconomic and financial integrity risks, and elevate the risk of losing the last U.S. dollar correspondent banking relationship.”
Earlier in February, Republic of Marshall Islands (RMI), chose to decentre itself from the US dollar, its fiat currency – to that of a cryptocurrency named the Sovereign (SOV).
Due to its financial instability, RMI faces risks financially probably losing its correspondent banking relationship (CBR) with the US dollar, in case it turns Sovereign into account as its national cryptocurrency.
“The RMI’s only domestic commercial bank is at risk of losing its last U.S. dollar correspondent banking relationship (CBR) with a U.S.-based bank as a result of heightened due diligence by banks in the U.S. In addition, RMI plans to issue a decentralized digital currency as a second legal tender in addition to the U.S. dollar and the relevant law was enacted in February 2018,” stated IMF.
CBR: A key tool for the island nation
According to the report, the misgivings around the Sovereign’s AML/CFT policy can lead ways to the loss of CBR, which is a key tool for the island nation. RMI, as of now uses the US dollar as its legal currency and it is highly in need of receiving and spending US grants to maintain and improve its local economy.
Since there isn’t any strict KYC and AML measures at launch, there would prospectively be facilitation of crime, funding of terror or money laundering, with the usage of Sovereign. This would result in harsh inspection and possible loss of CBR.
“In light of the potential for digital currencies to be misused for money laundering and terrorist financing (ML/FT) purposes, the issuance of the Sovereign without effective implementation of comprehensive AML/CFT measures could […] lead to increased scrutiny from the AML/CFT standard setter and potential countermeasures, including, possibly, the immediate loss of the CBR,” stated the report.
In the report, IMF has also mentioned that issues like transaction surveillance, compliance vigilance, reporting of suspicious transactions and deterring of compliance failures have not been addressed.
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