Tiny Palau Seeks To Lead The Way With Official Cryptocurrency | Crypto

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Palau, with a population of around 18,000, is unlikely to be at the top of many people’s minds when they think of places at the forefront of technological innovation.

But the tiny Pacific island nation, located about 900 km (559 miles) west of the Philippines, has a bold mission to lead the official adoption and approval of cryptocurrencies.

As part of a partnership with US-based cryptocurrency firm Ripple, the island republic is exploring plans to launch the world’s first government-backed national stablecoin in the first half of 2022.

While operating on the same digital ledger, or blockchain, technology as other cryptocurrencies, Stablecoins differ from other digital currencies in that their value is tied to a real world asset such as the US dollar. For stablecoin proponents, this gives digital currencies an edge over notoriously volatile cryptos like Bitcoin, which have been priced between $ 5,000 and $ 65,000 in the past 20 months alone.

Palau President Surangel Whipps, Jr touted the adoption of a stablecoin as a way to make life more convenient for citizens and to diversify the economy away from tourism, which before the pandemic made up about half of the proceeds gross domestic (GDP).

Palau’s GDP fell 8.7% last year, with a further contraction of 17.6% expected in 2021, according to a report from the Graduate School USA, largely due to the collapse in travel due to COVID-19.

To stay afloat, the country obtained a $ 25 million loan from the Asian Development Bank in April.

Ripple, which is based in San Francisco, has committed to working with Palau to explore “a USD-backed stablecoin”, strategies for cross-border payments and other features using its XRP ledger, like a business register.

At a press briefing last week, Whipps said he envisions citizens buying merchandise in stores with their phones and government workers receiving their pay instantly instead of waiting days for the transaction is carried out at their bank.

“Why not make it so simple? Whipps told local reporters.

“Having a digital currency kind of eliminates the need for a bank,” he said. “You know, that makes everyone their own bank. “

Some cryptocurrency advocates see digital currencies as a way to empower people who don’t have access to banking services [File: Shannon Stapleton/ Reuters]

According to the plans, which are only in their infancy after a memorandum of understanding was signed last month, Palau’s digital currency would be backed by the US dollar.

Palau, which is an independent country but relies on the United States for aid and security under a free association agreement, does not have its own currency or central bank and uses the US dollar as its official currency. .

Yet there is considerable ambiguity about what will result from Palau’s partnership with Ripple – a reality recognized by the Palau ruler himself, who described the “first step” as getting “as much information as possible” for ” develop a plan to harness and use that.

Ongerung Kambes Kesolei, editor of Tia Belau newspaper, told Al Jazeera that while the idea of ​​emerging technologies may excite some people in the country, most have no idea how cryptocurrency works.

“It’s a very volatile industry, but if it would work, the jury is still out,” Kesolei said.

“There is a cryptocurrency market but despite everything, many countries around the world are skeptical or in a wait-and-see attitude. No country is diving completely, which shows that this economic sector is still in its early stages of development, so one cannot say that it would work just yet. “

Lord Fusitu’a, a strong cryptocurrency advocate who sits in the parliament of the Pacific island nation of Tonga, told Al Jazeera there was a danger in getting a country’s digital currency into the hands of of a private company.

“The world’s first stablecoin is no honor, I wouldn’t brag about it because you are effectively putting your country at the mercy of US dollar inflation, but not reaping any of its benefits,” Fusitu said. ‘To.

“And you pair it with a digital currency owned by a private company, which the people of Palau did not vote for. It is a private enterprise, and private enterprises have only one function, and that is to make profit for themselves.

Fusitu’a also questioned the choice of Ripple, which the United States Securities and Exchange Commission sued for allegedly breaking rules prohibiting trading in unregistered securities. Ripple has denied the SEC’s claims, arguing that its digital coins are not securities under the law.

“The reason it is considered security is precisely because it is not a decentralized and distributed cryptocurrency like Bitcoin,” Fusitu’a said.

“Nature of the money”

Countries have taken varied approaches to the emergence of cryptocurrencies, whose total value last month exceeded $ 3 trillion, according to CoinGecko.

In September, El Salvador became the first country to accept Bitcoin as legal tender. Many other governments have viewed digital currencies with suspicion, with countries like China, India and Indonesia implementing or considering a ban.

Ross Buckley, a FinTech and digital currencies expert at the University of New South Wales in Sydney, Australia, told Al Jazeera that while officially supported digital currencies have the potential to empower people in the Pacific who did not have access to banking services, there were many challenges to their implementation.

Buckley said countries such as China, the UK and Canada have yet to launch official digital currencies despite years of research and planning.

“It’s a very complicated thing to do because it changes the fundamentals of the economy in a pretty profound way,” he said, adding that it would be even more difficult for a country without a central bank.

“It’s almost really hard to understand how a country without a central bank would do it because it’s a change in the nature of money.”

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