IMF advises Pacific island country’s stablecoin CBDC to attack ‘unsupported cryptocurrency’

The International Monetary Fund (IMF) believes that digital currencies can transform financial inclusion and cross-border connectivity for Pacific Island Countries (PICs). In a recent paper, the IMF recommended central bank digital currencies (CBDC) and stablecoins, but warned against the adoption of ‘unsupported cryptocurrency assets’.

The paper, titled ‘The Rise of Digital Currencies: Implications for Pacific Island Countries’, explored the financial challenges faced by PICs and how different forms of digital currencies could solve them.

The PIC is a group of island nations in the Pacific Ocean that includes Palau, Fiji, Tuvalu, Samoa, Tonga, and Kiribati. The IMF said that although they vary in size and development, they face similar financial challenges, including low financial inclusion and costly cross-border payments.

Digital currencies could be a solution, but only if they are well designed and managed, the Washington DC-based organization noted.

For countries like Fiji that use their own national currency, the IMF recommends a central bank digital currency. However, we acknowledge that this is not feasible in the short and medium term. In PICs where banking systems are developed, a two-tier CBDC system is best, with commercial banks acting as intermediaries and providing retail CBDC services.

PICs without a national currency, such as Palau, which relies on the U.S. dollar, should look for foreign currency-backed stablecoins. However, these stablecoins must be subject to strong regulation to protect the public.

Pacific island countries should avoid decentralized digital assets, the IMF has warned.

“However, unsupported cryptocurrency assets are not suitable as official currencies and means of payment and should not be supported by the official sector,” the paper said.

The IMF has been opposing ‘cryptocurrencies’ for years. Through reports, we have continued to call for El Salvador and the Central African Republic to restore BTC’s fiat currency status.
President Nayib Bukele has revealed that this is one of the conditions under which he will negotiate financial support. Argentina was also forced to adopt an anti-digital asset stance as a condition of its $44 billion loan.

However, it has published several papers supporting CBDCs and containing recommendations for central banks as they explore these digital currencies. We have also partnered with some central banks and global financial institutions to research CBDCs.

To learn more central bank digital currency Read on for some design decisions to consider when creating and getting started. nChain’s CBDC Playbook.

Watch: Building a CBDC System on Bitcoin

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