The Pacific Islands countries, located in remote and dispersed areas of the Pacific Ocean, have the potential to improve financial inclusion and the quality of financial services through the use of digital money, according to the International Monetary Fund (IMF). In a recently published report, the IMF’s senior economic experts highlighted the challenges faced by these nations and suggested that the adoption of stablecoins and central bank digital currencies (CBDCs) could address these challenges.
While the report primarily focuses on the benefits of CBDCs, the IMF also acknowledges the potential of private stablecoins backed by foreign currencies. However, the IMF advises against smaller Pacific Island countries issuing their own sovereign stablecoins due to the lack of oversight capabilities. The only private stablecoin explicitly mentioned in the report is Tether (USDT).
For Pacific Islands countries with existing national currencies and well-established banks, the report suggests a two-tier CBDC model as the best option. This model involves the central bank issuing the CBDC but delegating its operation to private intermediaries. On the other hand, only a few countries in the region, namely Fiji, Palau, Solomon Islands, and Vanuatu, are currently exploring the possibility of implementing a CBDC, while none of them officially use private cryptocurrencies or stablecoins.
The IMF continues to be a strong advocate for the implementation of CBDCs worldwide. In November 2023, the managing director of the IMF, Kristalina Georgieva, urged the public sector to prepare for the deployment of CBDCs, stating that they can replace cash and coexist with private money as a safe and cost-effective alternative.
In conclusion, the IMF believes that digital money, both private and public, has the potential to enhance financial services and inclusion in the Pacific Islands countries. While the report focuses on the benefits of CBDCs, it also acknowledges the potential of private stablecoins. The IMF advises against smaller countries issuing their own stablecoins and recommends a two-tier CBDC model for countries with existing national currencies and mature banking systems. The IMF’s advocacy for CBDCs aligns with its belief that they can replace cash and complement private money as a secure and affordable alternative.