IMF Advocates Digital Currency for Financial Inclusion in Pacific Islands

The International Monetary Fund (IMF) has highlighted the transformative potential of digital currencies in enhancing financial inclusion and improving access to financial services across the dispersed nations of the Pacific Ocean.

In a report released on March 25, senior economic experts at the IMF explored the potential benefits of private stablecoins and central bank digital currencies (CBDCs) for the economies of Pacific Islands countries.

The report underscored the limited and unequal access to financial services in these nations, which perpetuates poverty and inequality. Additionally, it highlighted their heavy reliance on remittance flows, leaving them susceptible to challenges arising from shrinking correspondent banking relationships.

Digital Currency’s Potential to Aid Pacific Island Nations

The IMF advocates for embracing the digital money revolution to unlock numerous benefits for Pacific Island nations. This includes developing robust payment systems, enhancing financial inclusion, and addressing the challenges of correspondent banking relationships, ultimately fostering economic growth and stability.

While the IMF primarily emphasizes central bank digital currencies (CBDCs), it also recognizes the potential of private stablecoins backed by foreign currencies. However, it cautions against smaller Pacific Island countries issuing their own sovereign stablecoins due to limited oversight capacities. Notably, the report mentions Tether as a specific example of a private stablecoin.

In Pacific Island nations with established national currencies and developed banking infrastructures, the IMF advocates for a two-tier CBDC framework. Under this model, the central bank would issue the digital currency while outsourcing its operational management to private intermediaries.

For countries lacking their own currencies, the IMF report proposes foreign currency-backed stablecoins as a potential solution. However, stringent regulatory oversight would be necessary to ensure stability and security.

Presently, no Pacific Island nation has officially embraced private cryptocurrencies or stablecoins. Only a handful of countries, including Fiji, Palau, Solomon Islands, and Vanuatu, are exploring the implementation of CBDCs. Meritking

IMF’s Persistent Support for CBDC Adoption

IMF Continues Leading Advocacy for CBDC Implementation. The International Monetary Fund (IMF) remains at the forefront of global efforts to promote the adoption of Central Bank Digital Currencies (CBDCs). Managing Director Kristalina Georgieva has underscored the potential of CBDCs to gradually replace physical cash while coexisting alongside private currencies, offering a secure and cost-effective monetary alternative.

According to data from the Atlantic Council CBDC tracker, 130 countries, representing 98% of the world’s Gross Domestic Product (GDP), are currently exploring the development of CBDCs. Among the G20 nations, 19 are in advanced stages of CBDC development.

To date, 11 countries have successfully launched CBDCs, including China, The Bahamas, Nigeria, Anguilla, Jamaica, and seven Eastern Caribbean countries.

However, the United States stands out as one of the few major economies without confirmed plans for a digital currency launch. Nonetheless, the country is making progress in developing a wholesale (bank-to-bank) CBDC.

Despite these advancements, CBDC adoption in the US faces opposition from some lawmakers, primarily due to concerns regarding privacy. Governor Ron DeSantis of Florida, who is now a Republican presidential candidate, signed a bill last year banning CBDCs, citing worries about financial surveillance and control.

“The movement to establish a central bank digital currency is an attempt to surveil & control the finances of Americans. It would violate privacy, limit consumer choice & undermine market competitiveness,” DeSantis remarked at the time.

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