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Tiny Palau seeks to blaze trail with official cryptocurrency | Crypto

Tiny Palau seeks to blaze trail with official cryptocurrency | Crypto
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Palau – with a population of 18,000 – is unlikely to be on the top of many people’s minds when they think of places at the forefront of technological innovation.

But the small Pacific island nation, located about 900 kilometers (559 miles) west of the Philippines, is on a bold mission to lead and endorse the official adoption of cryptocurrencies.

In partnership with US-based cryptocurrency firm Ripple, Palau is exploring plans to launch its first government-backed stablecoin in the first half of 2022.

linked to real currency

While working on the same digital ledger technology, or blockchain, as other cryptocurrencies, stablecoins differ from other digital currencies in that their value is tied to a real asset such as the US dollar. For stablecoin proponents, this gives digital currencies an advantage over well-known volatile cryptocurrencies such as Bitcoin, whose price has fluctuated between $5,000 and $65,000 in just the last 20 months.

Palau’s president, Surangel Whipps, Jr. has promoted the adoption of a stable currency as a way to make life more convenient for citizens and diversify the economy away from tourism, which before the pandemic accounted for about half of the gross domestic product (GDP).

Lao’s gross domestic product contracted 8.7 percent last year, with another 17.6 percent contraction expected in 2021, according to a report from the USA Graduate School of Education, largely due to the collapse in travel due to COVID-19.

The Asian Development Bank in April gave the country a $25 million loan to keep it afloat.

San Francisco-based Ripple has pledged to work with Palau to explore a “dollar-backed stablecoin,” strategies for cross-border payments and other features using the XRP Ledger such as the company’s registry.

In a briefing last week, Webs said he envisions citizens buying goods in stores with their phones and government employees getting paid immediately rather than waiting days for a transaction to take place at their bank.

“Why don’t you make it that simple?” Webs told local reporters.

“Having a digital currency somehow eliminates the need to have a bank,” he said. “You know, that makes everyone their own bank.”

Some advocates see digital currencies as a way to empower people who lack access to banking services [File: Shannon Stapleton/ Reuters]

At the mercy of an inflationary dollar

Under the plans, which are still in the early stages following the signing of a memorandum of understanding last month, Palau’s digital currency will be backed by US dollars.

Palau, an independent country but dependent on the United States for assistance and security under the Pact of Free Association, does not have its own currency or central bank and uses the US dollar as its official currency.

However, there is still considerable ambiguity about what will result from Palau’s partnership with Ripple – a fact admitted by the Palau leader himself, who described his “first step” as obtaining “as much information as possible” in order to “devise a plan to harness and take advantage of this “.

Ongerung Kambes Kesolei, editor of Tia Belau newspaper, told Al Jazeera that while the idea of ​​emerging technologies may excite some people in the country, most of them have little idea of ​​how cryptocurrency works.

“It’s a highly volatile industry but whether or not it’s going to work, the jury is still out,” Kisoli said.

“There is a market for cryptocurrencies but many countries around the world are still skeptical or in a wait-and-see attitude. Not a single country is fully immersed, which shows that this economic sector is still in its early stage of development, so it cannot be said now that it will work “.

Lord Fusitwa, a cryptocurrency advocate who sits in Parliament on the Pacific island of Tonga, told Al Jazeera that there is a risk of putting a country’s digital currency in the hands of a private company.

“The world’s first stablecoin is not an honor, and I wouldn’t brag about it because you are effectively putting your country at the mercy of US dollar inflation, but without getting any of its benefits,” Fusitu’a said.

“And you link it to a digital currency owned by a private company, which people in Palau didn’t vote for. This is a private company, and private companies only have one job, which is to make a profit for themselves.”

Fusitu’a also questioned the choice of Ripple, which the US Securities and Exchange Commission has taken to court for allegedly violating rules against trading unregistered securities. Ripple has denied the SEC’s allegations, arguing that its digital currencies are not securities by law.

“The reason it is considered security is precisely because it is not a decentralized, distributed cryptocurrency like Bitcoin,” Fusitu’a said.

The nature of money

Countries have taken various approaches to the emergence of cryptocurrencies, whose total value last month exceeded $3 trillion, according to CoinGecko.

In September, El Salvador became the first country to begin accepting bitcoin as legal tender. Many other governments view digital currencies with suspicion, with countries such as China, India, and Indonesia implementing or considering bans.

Ross Buckley, an expert in financial technology and digital currencies at the University of New South Wales in Sydney, Australia, told Al Jazeera that while officially backed digital currencies have the potential to empower people in the Pacific who lack access to banking, there are many challenges to implementing them.

Buckley said that countries such as China, the UK and Canada have yet to launch an official cryptocurrency despite years of research and planning.

“It is very complex because it changes the fundamentals of the economy in a very profound way,” he said, adding that it would be much more difficult for a country without a central bank.

“It is almost really difficult to understand how a country without a central bank can do that because it is a change in the nature of money.”

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