The Republic of the Marshall Islands, an island country near the equator in the Pacific Ocean, has created a new digital currency in an attempt to raise capital to pay down its debt. According to its representatives, the country is the first in the world to officially recognize a cryptocurrency as its legal tender.
The Marshall Islands passed a law this week to declare the Sovereign (SOV) as its legal tender. With a population of just 60,000, this would be the equivalent of a large town in the United States creating a local, digital currency. This is not far from the truth of the current situation. The Marshall Islands is aligned with the United States under a Compact of Free Association and uses the US dollar as its currency. The US has a base on the islands, and invests $70 million per year into the local economy.
As this trend continues, we will likely see other countries adopting similar strategies, particularly those with high debt. Venezuela was the first country to launch a cryptocurrency when it released the reportedly oil-backed Petro last month. Among the differences between the SOV and the Petro, the SOV has become legal tender, while the Petro is more of a store of value with limited uses in the local economy of Venezuela. Many countries carry debt, including the United States. With a national debt of nearly $21 trillion dollars and spending outpacing cuts, it’s unlikely that this total will shrink without bringing radical new ideas to the table. Could a US government-backed cryptocurrency be one of them?
The Marshall Islands are not alone in their quest. Israeli company Neema partnered with them to launch the SOV. Additionally, the Marshall Islands are in talks with international investors. Should these investors buy into the newly minted digital coins, they could make a market that drives up the price.
Unlike Bitcoin and other fully decentralized cryptocurrencies, the SOV will require users to identify themselves. This removes the anonymity afforded by most coins today. This will not carry over well with purists, but it may work with the local residents if it is easy to use. According to President Hilda Heine, “It’s another step of manifesting our national liberty.”
There will be 24 million SOVs released as they get ready to launch their ICO, with half of the coins going to the government of the Marshall Islands, and half of the coins going to the Israeli company, Neema. Of the total, 6 million SOVs will be sold during the pre-ICO. Funds raised will get paid into the national budget, with 2.4 million coins paid out to local residents.
Some government representatives in the Marshall Islands have expressed concern about the large amount of coin going to the Israeli company, Neema. These concerns are not without merit; Neema could effectively crash the Marshall Islands economy by dumping the coins or otherwise manipulating the market. While utilizing a digital currency may be a wise move, this large amount of coin in the hands of a private entity was a poor move, risking the future of the local population.