IMF calls for careful design, slow introduction of Pacific island digital currencies

Situations in Pacific Island Countries (PICs) create special financial needs. Digital currencies are up to the task of meeting those needs, with the right design features, the International Monetary Fund (IMF) found in a new paper. At the same time, he warned against the use of unsupported cryptocurrencies as national currency.

PICs are small, diversified, and geographically isolated markets with challenges related to service delivery and inclusion, such as high reliance on remittances and exposure to reduced correspondent banking services. Due to weak oversight, they are responsible for conducting international anti-money laundering efforts.

PICs differ from others in that they develop local payment systems and have their own fiat currency. Some PICs do not have any domestic financial infrastructure.

It is great to see the fruit of last year's IMF conference in Fiji.

The department's paper, “The Rise of Digital Money: Implications for Pacific Island Countries,” explores the rapidly evolving landscape of digital money in terms of scale, distance and… pic.twitter.com/z4c8qrHB4S

— Jay Hunter Anson (@JHX_1138) February 27, 2024

PICs mostly trade with large countries outside the region. Developing a regional approach to digital money could help alleviate problems such as expansion constraints and economic volatility, the IMF said. The road to digitization may be long for PICs who do not yet have adequate internet connectivity.

Related: IMF Working Paper Offers Country-Level Assessment Matrix for Crypto Risks

The IMF rejected the existence of cryptocurrencies in the PIC, rejecting their applicability in one sentence, saying that “weak alternative payment methods and carry additional macroeconomic risks compared to other forms of digital money (e.g. risks in financial efficiency) policy, fiscal risks, financial stability risks, financial integrity, etc.)” the authors say.

“Some PICs are vulnerable to being replaced by crypto-assets and statscoins in the absence of other publicly-backed digital assets such as CBCC due to weak confidence in their domestic financial system. [central bank digital currencies]He said.

Digital solutions depend on local conditions, but the IMF has several general recommendations. They include offline functionality due to low connectivity, massive data collection to ensure sustainability of the business model, and upgrading existing systems to provide interoperability and programmability of the digital currency.

Overall, the report leans toward slow, deliberate action on digital currency. This advice has been heard before as PICs have shown interest in other digital currency technologies. The IMF, for example, challenged the legitimacy of the Marshall Islands' Decentralized Autonomous Organizations (DAOs). He also urged the central bank to halt its plans to introduce a digital currency, citing the island nation's unpreparedness.

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