IMF Suggests Stablecoins and CBDCs to Enhance Economies of Pacific Islands

In an effort to improve financial inclusion and enhance financial services in the remote Pacific Islands, the International Monetary Fund (IMF) proposes leveraging digital currencies, both public and private.

A recent report published by the IMF on March 25 outlines the potential benefits of stablecoins and central bank digital currencies (CBDCs) for the economies of Pacific Islands countries. This region, characterized by its dispersed nations and limited access to financial services, faces significant challenges, including poverty and inequality exacerbated by reliance on remittance flows and the impact of diminishing correspondent banking relationships.

The IMF suggests that embracing the digital money revolution could address these challenges by facilitating payment systems, expanding financial inclusion, and mitigating the risks associated with correspondent banking relationships. While the focus of the report leans towards CBDCs, the IMF also acknowledges the potential of private stablecoins backed by foreign currencies.

For Pacific Island countries (PICs) with established national currencies and mature banking systems, the IMF recommends a two-tier CBDC model, where the central bank issues the currency but entrusts operational management to private intermediaries. However, for countries without their own currencies, the IMF suggests exploring foreign currency-based stablecoins, albeit with stringent regulation and supervision.

Presently, none of the PICs officially utilizes private cryptocurrencies or stablecoins, and only a few are actively considering CBDCs. Nonetheless, the IMF continues to advocate for CBDC implementation, viewing it as a viable alternative to cash and a complement to private currencies, offering safety and cost-effectiveness.