Palau, with a inhabitants of roughly 18,000, is unlikely to be on the high of many individuals’s minds after they consider locations on the slicing fringe of technological innovation.
However the tiny Pacific Island nation, which is situated about 900km (559 miles) west of the Philippines, is on a daring mission to spearhead the official adoption and endorsement of cryptocurrencies.
Beneath a partnership with United States-based cryptocurrency firm Ripple, the island republic is exploring plans to launch the world’s first government-backed nationwide stablecoin within the first half of 2022.
Whereas operating on the identical digital ledger expertise, or blockchain, like different cryptocurrencies, Stablecoins differ from different digital currencies in having their worth pegged to a real-world asset such because the US greenback. For stablecoin proponents, that provides the digital currencies an edge over notoriously unstable cryptos corresponding to Bitcoin, whose worth has swung between $5,000 and $65,000 over the last 20 months alone.
Palauan President Surangel Whipps, Jr has touted the adoption of a stablecoin as a solution to make life extra handy for residents and diversify the financial system away from tourism, which earlier than the pandemic accounted for about half of gross home product (GDP).
Palau’s GDP shrank by 8.7 p.c final 12 months, with an additional contraction of 17.6 p.c anticipated in 2021, in line with a report by the Graduate College USA, largely because of the collapse of travel due to COVID-19.
To remain afloat, the nation in April was granted a $25m mortgage by the Asian Improvement Financial institution.
Ripple, which relies in San Francisco, has pledged to work with Palau to discover “a USD-backed stablecoin”, methods for cross-border funds and different options utilizing its XRP Ledger corresponding to a company registry.
In a media briefing final week, Whipps mentioned he envisaged residents buying items in outlets with their telephone and authorities workers receiving their salaries instantaneously as an alternative of ready days for the transaction to undergo at their financial institution.
“Why not make it that straightforward?” Whipps instructed native reporters.
“Having a digital foreign money in some methods type of eliminates the necessity for a financial institution,” he mentioned. “You understand, it makes it so everyone’s their very own financial institution.”
Beneath the plans, which stay within the early levels following the signing of a memorandum of understanding final month, Palau’s digital foreign money could be backed by the US greenback.
Palau, which is an unbiased nation however depends on america for support and safety underneath a Compact of Free Affiliation, doesn’t have its personal foreign money or central financial institution and makes use of the US greenback as its official foreign money.
Nonetheless, there may be appreciable ambiguity about what is going to outcome from Palau’s partnership with Ripple — a actuality acknowledged by the Palauan chief himself, who has described the “first step” as getting “as a lot info as we are able to” to “give you a plan to harness and make use of this.”
Ongerung Kambes Kesolei, the editor of the Tia Belau newspaper, instructed Al Jazeera that whereas the thought of rising applied sciences may excite some individuals within the nation, most had little concept how cryptocurrency labored.
“It’s a extremely unstable business however whether or not it will work, the jury continues to be on the market,” Kesolei mentioned.
“There’s a cryptocurrency market however nonetheless, many nations world wide are sceptical or in a wait-and-see perspective. Nobody nation is absolutely diving in, which exhibits that this financial sector continues to be in its early stage of growth so to say it will work can’t be mentioned proper now.”
Lord Fusitu’a, a vocal cryptocurrency advocate who sits in parliament within the Pacific Island nation of Tonga, instructed Al Jazeera there was a hazard in placing the digital foreign money of a rustic within the arms of a non-public firm.
“The world’s first stablecoin will not be an honour, I’d not brag about it since you’re successfully placing your nation on the mercy of the inflation of the US greenback, however with out getting any of its advantages,” Fusitu’a mentioned.
“And also you’re tying it to a digital foreign money that’s owned by a non-public firm, that the individuals in Palau didn’t vote for. This can be a non-public firm, and personal corporations have just one perform, and that’s to make a revenue for themselves.”
Fusitu’a additionally questioned the selection of Ripple, which the US Securities and Alternate Fee has taken to courtroom for allegedly violating guidelines in opposition to the buying and selling of unregistered securities. Ripple has denied the SEC’s allegations, arguing that its digital cash usually are not securities underneath the legislation.
“The explanation it’s thought-about a safety is exactly as a result of it’s not a decentralised, distributed cryptocurrency like Bitcoin,” Fusitu’a mentioned.
‘Nature of cash’
Nations have taken diverse approaches to the emergence of cryptocurrencies, the overall worth of which final month exceeded $3 trillion, in line with CoinGecko.
In September, El Salvador grew to become the primary nation to start out accepting Bitcoin as authorized tender. Many different governments have eyed digital currencies with suspicion, with nations together with China, India, Indonesia implementing or contemplating a ban.
Ross Buckley, an knowledgeable in FinTech and digital currencies on the College of New South Wales in Sydney, Australia, instructed Al Jazeera that whereas officially-back digital currencies had the potential to empower individuals within the Pacific who lacked entry to banking providers, there have been many challenges to their implementation.
Buckley mentioned nations corresponding to China, the UK and Canada had but to launch official digital currencies regardless of years of analysis and planning.
“It’s a really difficult factor to do as a result of it modifications the basics of the financial system in fairly a profound approach,” he mentioned, including that it will be much more troublesome for a rustic and not using a central financial institution.
“It’s virtually actually obscure how a rustic and not using a central financial institution would do it as a result of it’s a change within the nature of cash.”