Digital currencies are well-suited to meet the unique currency needs of Pacific Island countries (PICs), according to a new paper by the International Monetary Fund (IMF). However, the IMF warned against the use of unbacked cryptocurrencies as national currency. PICs face challenges such as reliance on remittances, vulnerability to reduced correspondent bank services, poor controls leading to potential Anti-Money Laundering violations, and differences in the development of local payment systems and fiat currencies. The IMF recommends a regional approach to digital money to address scalability constraints and economic volatility. Some PICs still lack adequate internet connectivity, making their path to digitization longer. The IMF dismissed cryptocurrencies as poor substitutes for means of payment, highlighting their macroeconomic risks. The IMF’s general recommendations for digital solutions include offline functionality, high data collection, and upgrades to existing systems for interoperability and programmability. The report advises a slow and deliberate approach to digital currency, citing the risks associated with decentralized autonomous organizations and unpreparedness for central bank digital currencies.
IMF advocates cautious implementation and gradual rollout for digital currencies in Pacific Island nations