IMF: Digital Currency Key to Boosting Pacific Islands' Financial Inclusion

The IMF report highlights the potential of digital money, including stablecoins and CBDCs, to enhance financial inclusion and services in Pacific Island countries. These countries face challenges with limited financial access, high dependence on remittances, and dwindling correspondent banking relationships. The IMF suggests that digital money can address these issues by expanding payment systems, mitigating the loss of correspondent banks, and promoting financial inclusion.

Digital Money's Role in Advancing Financial Inclusion in the Pacific Islands

Washington, D.C. - March 25, 2023 - The International Monetary Fund (IMF) has released a comprehensive report exploring the potential role of digital money, including stablecoins and central bank digital currencies (CBDCs), in enhancing financial inclusion and the quality of financial services in the remote and geographically dispersed Pacific Islands countries.

Entitled "Digital Money: A Potential Game Changer for Financial Inclusion in the Pacific Islands," the report delves into the unique challenges faced by the economies of the Pacific Islands region, characterized by:

• Limited and unequal access to financial services, exacerbating persistent poverty and inequality.
• A heavy reliance on remittance flows, making the region disproportionately vulnerable to declining correspondent banking relationships.

Against this backdrop, the IMF highlights the transformative potential of digital money in:

• Facilitating payments and transactions, expanding financial inclusion.
• Mitigating the loss of correspondent banking relationships, ensuring the flow of funds.

Central Bank Digital Currencies (CBDCs): A Focus

Unsurprisingly, the report places considerable emphasis on CBDCs, a topic that the IMF has actively advocated. However, the IMF also recognizes the potential of private stablecoins backed by foreign currencies, particularly for countries without their own official currency.

The IMF cautions smaller Pacific Island countries (PICs) against issuing their own sovereign stablecoins due to concerns over oversight capacities. Tether (USDT) is the only private stablecoin explicitly mentioned in the report.

Two-Tier CBDCs: A Suitable Option

For PICs with established national currencies and mature banking systems, the report recommends a two-tier CBDC model. In this model, the central bank would issue the CBDC but delegate its operation to private intermediaries.

For countries without their own currencies, the IMF suggests exploring foreign currency-based stablecoins as a viable alternative, albeit with robust regulation and supervision.

Current Status of Digital Money in PICs

As of the report's publication, no PICs officially use private cryptocurrencies or stablecoins. However, several countries, including Fiji, Palau, Solomon Islands, and Vanuatu, are exploring CBDCs.

IMF's Advocacy for CBDCs

The IMF remains a staunch proponent of CBDCs, aligning with the views of its Managing Director, Kristalina Georgieva. Georgieva has repeatedly urged the public sector to prepare for the deployment of CBDCs, envisioning them as a safe and cost-effective alternative to cash and private money.

In conclusion, the IMF's report provides a valuable assessment of the potential benefits and challenges of digital money in the Pacific Islands region. As the world continues to navigate the evolving landscape of digital finance, the IMF's insights offer critical guidance for policymakers seeking to leverage these technologies to promote financial inclusion and economic growth.