Boosting Pacific Islands’ Economies: IMF Urges Stablecoins & CBDCs

The International Monetary Fund (IMF) has released a report discussing the potential benefits of digital money, including stablecoins and central bank digital currencies (CBDCs), for remote nations located in the Pacific Ocean. The report emphasizes the limited and unequal access to financial services in these countries, which contributes to poverty and inequality. They are heavily reliant on remittance flows, making them vulnerable to diminishing correspondent banking relationships. The IMF suggests that adopting digital money could help these nations develop payment systems, improve financial inclusion, and mitigate the impact of losing correspondent banking relationships.

While the report primarily focuses on CBDCs, it also mentions private stablecoins backed by foreign currencies. The IMF cautions smaller Pacific Islands countries (PICs) against issuing their own sovereign stablecoins due to limited oversight capacities. The only private stablecoin explicitly mentioned in the report is Tether (USDT). For PICs with existing national currencies and mature banks, the report suggests a two-tier CBDC model, where the central bank issues the currency but delegates its operation to private intermediaries. For countries without their own currencies, foreign currency-based stablecoins could be a viable alternative but require robust regulation and supervision.

Currently, none of the PICs officially use private crypto or stablecoins, and only Fiji, Palau, Solomon Islands, and Vanuatu are exploring the possibility of implementing a CBDC. The IMF has been a vocal advocate for CBDC implementation and has urged the public sector to prepare for their deployment. IMF Managing Director, Kristalina Georgieva, believes CBDCs can replace cash and coexist with private money, providing a safe and low-cost alternative.

The IMF’s report highlights the potential benefits of digital money for Pacific Islands nations. It suggests that adopting stablecoins and CBDCs could address the challenges they face in terms of financial inclusion, payment systems, and correspondent banking relationships. Careful regulation and oversight are crucial to ensure the successful implementation of digital money in these countries.