The Republic of the Marshall Islands has been warned against the adoption of a digital currency as a second form of legal tender.
The International Monetary Fund (IMF) has said that the country, which consists of hundreds of islands in the Pacific Ocean, should “seriously reconsider”.
Currently, only the US dollar account as legal tender in the islands.
An act to adopt a digital currency named “Sovereign” to the sides of the dollar was passed in February.
The first coins virtual currency are due to be issued to members of the public through an initial coin offering (ICO) later this year.
However, directors of the IMF stated that the potential benefits of the move were much smaller than the potential costs of the economic, reputational and governance risks”.
“[Marshall islands] the authorities should seriously review the issue of the digital currency’s legal,” wrote the directors in their report, which was first spotted by cryptocurrency news site Coindesk.
There are just a domestic commercial bank in the country, and it is at the risk of losing his only correspondent banking relationship with a bank in the united states.
This relationship allows the Islands to transfer dollars in and out of the country.
He highlighted the Marshall Islands, the dependence of foreign aid, and the fact that the country is vulnerable to natural disasters as well as the level of the sea related to climate change.
The adoption of a digital currency official, the legal form, the tender would threaten both the financial integrity and the nation’s key relationship with the us bank. The result could be the disruption of foreign aid, according to the IMF.
The financial world, the organisation was expressing concern because he was aware of the traditional banks’ wariness around digital currencies, said David Gerard, author of the Attack of the 50 foot Blockchain.
These banks may, for example, associate or crypto digital currencies for criminal activities, including money laundering because the digital currency networks have been designed to move coins or tokens around at high speed.
“You can’t control things,” Mr. Gerard told the BBC. “The chips are really, really liquid, that’s the whole point.”
This could give the US correspondent bank cause to rethink its relations with the republic of the Marshall Islands, he explained.
“The IMF is not strong-arming of the Marshals, what they do is to describe what will occur if they proceed – the large correspondent bank will be very worried,” he added.