Cryptocurrencies and, more broadly, the mechanism that underpins them — distributed ledger technology — continue to emerge in importance. One key trend within that sphere is the creation and adoption of cryptocurrencies by nation-states as they seek to harness the technology to their advantage. Some, such as Venezuela, have sought to bypass sanctions with their cryptocurrencies, but the Marshall Islands are bidding to become the first country to launch its own cryptocurrency for reasons other than ducking financial punishment.
The Marshall Islands, a small island nation in the western Pacific Ocean, plans to make big waves in the cryptocurrency world. Earlier this week, its parliament, the Nitijeļa, authorized the government to create its own cryptocurrency – the sovereign – to serve as an official legal tender. A minister-in-assistance to President Hilda Heine said that the initial coin offering for the sovereign could be ready by the end of the year, adding that the cryptocurrency would help boost local budgets.
The announcement is noteworthy for a couple of different reasons. First, the Marshall Islands is one of about two dozen countries that use the U.S. dollar exclusively or in coordination with other currencies. Smaller countries heavily dependent on economic relations with a large partner like the United States often find it more appealing or easier to simply forgo their own national currency and adopt the larger country's. Other countries, such as Zimbabwe, have seen confidence in their national currencies collapse under the pressures of hyperinflation, leading toward the adoption of more stable hard currencies, whether officially or just in practice. Developing a domestic cryptocurrency could represent an alternative to those practices. This alone makes the Marshall Islands' foray into the uncharted waters of a sovereign cryptocurrency worth following.
In the bigger picture, the Marshalls are among a series of states, each driven by its own reasoning, that are flirting with creating their own cryptocurrencies. Last week Venezuela began early sales of the Petro, a cryptocurrency backed by the value of its vast oil reserves. Meanwhile, Russia is working on the cryptoruble, Estonia has toyed with launching estcoin to serve those who use its e-residency program (a form of virtual citizenship), and Iran has floated the possibility of launching its own cryptocurrency as well. While the Marshall Islands' move represents its attempt to address the challenges of being a small fish in a big pond, Russia, Iran and Venezuela are all trying to isolate themselves from the biggest fish in the pond — the United States — giving them the ability to blunt the effects of U.S. financial sanctions.
Each of these test cases point to a larger trend that, as it plays out, could affect the way those countries' economies operate. As nations create their own cryptocurrencies — and the use of cryptocurrencies with no state backing increases — states will find it more difficult to manage economic stability through monetary policy and other mechanisms. Additionally, adopting national cryptocurrencies will affect the banking sector and change the way that financial transactions are made.