Tiny Palau wants to make way for the official cryptocurrency | Cryptography

Palau, with a population of approximately 18,000, is unlikely to be in the minds of many people when it comes to thinking about places at the forefront of technological innovation.

But the small Pacific island nation, 900 km (559 miles) west of the Philippines, has a bold mission to officially accept and protect cryptocurrencies.

In partnership with the U.S.-based cryptocurrency company Ripple, the island republic is looking at plans to launch the world’s first government-sponsored stable coin in the first half of 2022.

While using the same digital library technology or blockchain as other cryptocurrencies, Stablecoins differs from other digital currencies in that their value is tied to a real-world asset, such as the US dollar. For Stablecoin advocates, this gives digital currencies an advantage over volatile cryptocurrencies like Bitcoin, whose price has changed between $ 5,000 and $ 65,000 in just the last 20 months.

Surangel Whipps Jr. The President of Palau has called for the adoption of a stable currency as a way to make life more comfortable for the people and to diversify the economy away from tourism, which took up about half of the gross domestic product (GDP) before the pandemic.

Palau’s GDP fell 8.7% last year, and a further shrink of 17.6% was expected in 2021, according to a report by the Graduate School USA, largely. Collapse of the trip as a result of COVID-19.

To stay away, the Asian Development Bank provided a $ 25 million loan to the country in April.

The San Francisco-based Ripple is committed to working with Palau on the “USD-backed stable currency,” using cross-payment strategies and its XRP Ledger, as well as using corporate registration, to explore other features.

In media reports last week, Whipp said citizens expected to buy goods in stores with their phones and that government employees would expect to receive salaries immediately instead of waiting for days until the transaction was made at the bank.

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

“Having digital currency somehow eliminates the need for a bank,” he said. “You know, everyone turns into their own bank.”

According to plans that are still in the early stages of signing a memorandum of understanding last month, Palau’s digital currency would be backed by the US dollar.

Palau, an independent country, but under a treaty of the United States-based Free Trade and Security Association, has no currency or central bank and uses the US dollar as its official currency.

However, there is a lot of ambiguity about what will come out of Palau’s partnership with Ripple – a reality that the Palau leader himself has acknowledged, as he described the “first step” in getting “as much information as we can” to “make a plan.” to take advantage of that. ”

Ongerung Kambes Kesolei, editor of the newspaper Tia Belau, told Al Jazeera that while the idea of ​​emerging technologies could impress some people in the country, most had little idea how the cryptocurrency would work.

“It’s a very volatile industry, but whether it would work or not, the jury is still out,” Kesolei said.

“There is a crypto-currency market, but many countries around the world are skeptical or wait and see. A country is not fully immersed, which shows that this economic sector is still in the development phase, so it would work. it can’t be said right now. “

Lord Fusitu’a, a spokeswoman for the crypto-currency advocate sitting in the Tongan Pacific National Parliament, told Al Jazeera that there was a risk that a country’s digital currency would be handed over to a private company.

“The first stable currency in the world is not an honor, I would not be proud of that because you are making your country subject to US dollar inflation, but without reaping its benefits,” Fusitu said.

“And you’re linking to a digital currency owned by a private company, the people of Palau didn’t vote. This is a private company, and private companies have only one function, and that is to make a profit for themselves. ”

Fusitu’a also questioned the choice of Ripple, who has been taken to court by the U.S. Securities and Exchange Commission for violating the rules against the trading of unregistered securities. Ripple has denied the SEC’s allegations, arguing that its digital currency is not a legal tender.

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

‘The nature of money’

Countries have taken a number of approaches to the emergence of cryptocurrencies, the total value of which was more than $ 3 trillion in the last month, according to CoinGeck.

In September, El Salvador became the first country to start accepting Bitcoin as a legal service. Many other governments have looked at digital currencies with suspicion, with countries such as China, India and Indonesia imposing or banning the ban.

Ross Buckley, a FinTech and digital currency expert at New South Wales University in Sydney, Australia, told Al Jazeera that officially protected digital currencies did not have access to banking services, even though they had the power to empower Pacific people. various challenges to implement them.

Buckley said countries like China, the United Kingdom and Canada still need to launch official digital currencies despite years of research and planning.

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

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