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In Palau, with a population of about 18,000, it is almost impossible for most people to imagine a place where advances are being made in technology.
But the small Pacific island nation, located 900km (559 miles) west of the Philippines, is on a daunting task leading to the adoption and acceptance of crypto currencies.
Under a partnership with US-based cryptocurrency company Ripple, the island’s republic is looking at plans to establish the first stablecoin funded by the government in the first half of 2022.
Moving on in the same digital technology, or blockchain, like other cryptocurrencies, Stablecoins differ from other digital currencies by having their value in real world prices like the US dollar. For stablecoin sponsors, this provides digital currency beyond well-known cryptos such as Bitcoin, whose value has risen between $ 5,000 and $ 65,000 in just 20 months.
President of the Palauan Surangel Whipps, Jr. said the establishment of stablecoin as a means of making life easier for citizens and disrupting the economy away from tourism, which prior to the epidemic, accounted for about half of gross domestic product (GDP).
Palau’s GDP fell by 8.7% last year, with a decrease of 17.6% expected in 2021, according to a report from Graduate School USA, mainly due to collapse of travel due to COVID-19.
To keep it afloat, the country in April was granted a $ 25m loan by the Asia Development Bank.
Ripple, based in San Francisco, has promised to work with Palau to investigate “stablecoin supported by USD”, payment methods and other features using its XRP Ledger as a company register.
Speaking to reporters last week, Whipps said he thinks citizens who buy goods in stores with their phones and government employees receive a straightforward payment instead of waiting for days to pass the work through their bank.
“Why don’t you make it easy?” Whipps told local reporters.
“Having digital currency in some way eliminates the need for a bank,” he said. “You know, it makes everyone their own bank.”
Under the plans, which are about to follow the signing of a memorandum of understanding last month, Palau’s digital currency will be backed by the US dollar.
Palau, which is an independent country but relies on the United States for aid and security under the Compact of Free Association, does not have its own currency or central bank and uses the US dollar as its official currency.
However, there are serious doubts about the outcome of the Palauan-Ripple alliance – a fact acknowledged by the Palauan leader himself, who described the “first step” as getting “as much as we could” to “come up with a plan.” connect and use this. ”
Ongerung Kambes Kesolei, editor of the newspaper Tia Belau, told Al Jazeera that while the idea of upcoming technologies may appeal to some people in the country, many were unaware of how cryptocurrencies work.
“It’s a stable business but even if it works, the judges are still out,” Kesolei said.
“There is a cryptocurrency market but still, many countries around the world are skeptical or waiting to see it.
Mr Fusitu’a, a cryptocurrency representative living in the Pacific Island nation of Tonga, told Al Jazeera there was a risk of placing the country’s digital currency in the hands of a private company.
“The first Stablecoin in the world is not an honor, I can not boast because you are putting your country on the brink of a US dollar rise, but not getting any profit,” Fusitu’a said.
“And you are associating with the digital currency owned by a business company, which the people of Palau did not vote for. This is a private company, and state-owned companies have only one mission, which is to make a profit for themselves.
Fusitu’a also questioned Ripple’s decision, which the US Securities and Exchange Commission has taken to court for violating anti-unregistered securities trade. Ripple has denied the SEC’s allegations, arguing that its digital assets are not protected under the law.
“The reason it is considered a security is because it is not a distributed cryptocurrency like Bitcoin,” Fusitu’a said.
‘The type of money’
Countries have taken various steps to create crypto currencies, which last month exceeded $ 3 trillion, according to CoinGecko.
In September, El Salvador became the first country to recognize Bitcoin as a legitimate alternative. Many other governments are skeptical of digital currency, with countries including China, India, Indonesia using or considering sanctions.
Ross Buckley, a FinTech specialist with digital finance at the University of New South Wales in Sydney, Australia, told Al Jazeera that while the already established digital currencies had the potential to empower Pacific people who had no access to banks, there were many difficulties in setting up at home.
Buckley said countries such as China, the UK and Canada had not yet set up digital finance even for research and planning for many years.
“It’s a very difficult thing to do because it undermines the very foundations of the economy,” he said, adding that it would be extremely difficult in a country without a central bank.
“It’s difficult to understand how a country without a central bank could do that because it’s a change in finance.”
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