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The Republic of Marshall Island (RMI) has been advised against the use of digital currency. It has been warned by the International Monetary Fund (IMF) against using crypto as its second mode of legal tender.

Marshall Islands cautioned of the dangers

Marshall Islands has been cautioned of the dangers of crypto as a legal tender. The IMF supported by the United Nations has warned that introducing digital currency risks the nation’s financial integrity. Additionally, using crypto as a legal tender will affect the relationships of RMI with international financial institutions.

Marshall Islands consists of many islands along the Pacific Ocean and utilizes the U.S dollar as its legal tender. In February, the RMI passed a law to have a cryptocurrency called Sovereign to be used together with the dollar. Later in the year, citizens are set to be issued with digital coins through an initial coin offering (ICO).

However, the IMF has urged RMI to carefully weigh the inherent risk on financial stability and the macroeconomy. The revenue gains from Sovereign (SOV) are far much lesser compared to the potential costs. Moreover, volatility of the SOV as well as its value is also a potential risk.

Correspondent banking relationship

In case, the Bank of Marshall Islands (BOMI) adopts the crypto, it will enhance diligence by the U.S banks. It will increase the risk of losing the correspondent banking relationship (CBR) with the banks.

It is this cordial relationship that makes it easy to transact funds inwards and outwards of Marshall Islands. Additionally, RMI highly depends on grants from the U.S, hence losing the CBR would seriously affect the nation’s economy.

Furthermore, the cost of enforcing policies against anti-money laundering and terrorism counter financing are lesser than financial gains. The IMF shared its sentiments, “The potential benefits from revenue gains appear considerably smaller than the potential costs arising from economic, reputational, AML/CFT, and governance risks.”

Consequently, the IMF persuaded the Marshallese government to reconsider the move. It should do so until it is capable of offering and implementing strong policies regarding economic, governance and reputational risks.

Meanwhile, the U.S Based institution clarified that it was not threatening the RMI. It was only warning them of the outcome of such a move.

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Steve Kanaval: Portfolio Manager/Writer/ Market Analyst Steve began his career in the Trading Pits in Chicago making markets at the Chicago Mercantile Exchange (NYSE:CME) the Chicago Board of Trade and the CBOE in the early 80’s. He ran the Morgan Stanley Derivative Prop Trading for the firm specializing in Index Arbitrage. He continued his career as a Trader/Portfolio Manager for multiple Hedge Funds during the Internet Boom of the 90’s managing large portfolios. Steve is known as an expert in MicroCap Technology Stocks and the emerging Digital Currency markets as a Portfolio Manager for his Family Office. Steve has managed portfolio’s in volatile asset classes for 3 decades as a commodity trader, hedge fund manager and digital currency trader and miner. Steve publishes his views on the asset classes in a public forum and has published more than 10,000 articles simplifying these complex and volatile assets for readers. His work is published on multiple sites including Bloomberg, Equities.com, Hacked.com, CryptoCurrencyNews as a paid contributor. His work includes research, journalism and archived video on important market volatility related to stocks, digital currency and other volatile misunderstood asset classes. He offers a humorous, unique insight and the related back stories and drivers for readers interested in volatility and emerging market assets. Full disclosure Steve is long 25 digital currencies and sits on the board of multiple public companies involved in digital currencies, and owns shares in these companies from time to time.