Pacific island nation challenges cash’s reign – SOV Foundation

The SOV will circulate alongside the US dollar, the country’s current fiat tender, and help the island nation tackle a range of challenges: from climate change and health issues to bringing previously unbanked individuals into the financial system.

Moreover, digital legal-tender currencies like the SOV can enable safe, instant and cost-effective international payments — and prevent small economies from being left behind.

The Republic of the Marshall Islands (RMI), one of only two island countries in the world that are made up entirely of low-lying coral atolls, lies in the middle of the Pacific Ocean. Majuro, the most populous atoll, is a 24-hour flight away from the east coast of Australia.

For a small and extremely remote country like the RMI, it’s a challenge to issue a fiat currency and manage it effectively.

For a start, the Marshall Islands is unable to replicate the standard financial infrastructure and processes prevalent throughout the rest of the world. The costs of running its own central bank would outweigh the benefits of maintaining a national currency.

In addition, the government of the Marshall Islands has limited financial and monetary expertise, which is another reason why the RMI has never previously issued a currency of its own. It has relied on the use of US dollars as the de facto Marshallese currency since 1982.

The small size of the economy also limits the development of its financial sector. The only bank in the country, for example, can’t issue credit cards and doesn’t provide any ATMs. Instead, it sends dollar notes between its island branches by boat. The dominance of cash not only makes inter-island payments difficult but also means that employees are paid with cheques, which then have to be cashed at local money exchangers for a high fee.

The Marshall Islands blazes a new trail

The RMI is well aware of these constraints and in February 2018, its legislature, the Nitijela, passed the Sovereign Currency Act, which set the stage for a first-of-its-kind government-issued currency that uses and leverages advances in blockchain technology.

The RMI will benefit greatly from the SOV. Out of the initial supply of 24 million SOVs, the Marshallese government will keep 50 percent. Half of these 50 percent — or 25 percent of the total — will be sold to the public. The proceeds from the sale, together with the other 25 percent of the initial SOVs that are held by the government, will then be allocated to trust funds.

The trust funds aim to tackle such challenges as the impact of climate change, or the ongoing health crisis caused by US nuclear tests in the ’40s and ‘50s.

The SOV leverages the benefits of blockchain

The SOV will illustrate how digital ledger technology can enable small countries to potentially combine the best features of fiat and digital currencies.

The SOV’s monetary policy, for example, is written into the SOV blockchain itself, which increases the currency’s trustworthiness. The monetary policy dictates that the money supply will increase by 4 percent annually (mirroring global GDP annual growth rate), with new money being directly distributed to currency holders pro-rata. What’s more, the SOV is the first sovereign currency with built-in anti-money-laundering and anti-terror-financing features.

Only individuals and entities who have been vetted in a private identity verification and sanctions screening process will be allowed to use the Sovereign, making the SOV safer and less prone to misuse compared to government-issued cash.* Additionally, the minting of new SOVs is strictly controlled by the code on the blockchain, which makes the SOV a reliable store of value with a predictable increase in supply.

Even though the SOV’s main objective is to strengthen the Marshall Islands as a nation, the currency is also designed for international use and has applications far beyond its own waters. Many of the same features that enable the SOV to become a trusted currency in the Marshall Islands can offer advantages to users elsewhere — especially if they happen to be from other small nations.

* For more details, read the technical whitepaper here.