The Pacific Islands countries, located in the remote and dispersed regions of the Pacific Ocean, have the potential to improve financial inclusion and enhance the quality of financial services through the use of digital money, according to the International Monetary Fund (IMF). In a recent report, the IMF’s senior economic experts emphasized the challenges faced by these nations and microstates and highlighted the opportunities presented by stablecoins and central bank digital currencies (CBDCs).
The report primarily focuses on CBDCs, which the IMF strongly advocates for, but also acknowledges the potential benefits of private stablecoins backed by foreign currencies. However, the IMF cautions smaller Pacific Island countries (PICs) against issuing their own sovereign stablecoins due to limited oversight capacities. Interestingly, the report specifically mentions Tether (USDT) as the only private stablecoin.
For PICs with established national currencies and mature banking systems, the report suggests a two-tier CBDC model as the most suitable option. Under this model, the central bank would issue the CBDC but delegate its operation to private intermediaries. Currently, none of the PICs officially utilize private cryptocurrencies or stablecoins, while a few, such as Fiji, Palau, Solomon Islands, and Vanuatu, are exploring the potential of CBDCs.
The IMF continues to be a prominent advocate for the implementation of CBDCs. In November 2023, the IMF’s managing director, Kristalina Georgieva, urged the public sector to prepare for the deployment of CBDCs, believing that they can serve as a safe and cost-effective alternative to cash while coexisting with private money.
Overall, the IMF’s report highlights the potential benefits of digital money for the Pacific Islands countries, emphasizing the need for improved payment systems, expanded financial inclusion, and the mitigation of challenges related to correspondent banking relationships.