IMF Urges Marshall Islands to Address Climate Change

The Republic of the Marshall Islands (RMI) and the International Monetary Fund (IMF) have concluded their annual discussions. The IMF predicts that the country’s gross domestic product (GDP) will increase this year as a result of COVID-19 and the contraction of its fishing industry.

Nonetheless, climate change and decentralized autonomous organizations (DAOs) continue to pose a threat. More than a thousand islands make up the RMI in the Central Pacific.

It has an average elevation of 2 meters above sea level and about 56,000 inhabitants. With a GDP of $261 million in 2022, the sale of a solitary fishing boat decreased GDP by 4.5% in that year. He added:

“The enactment of the DAO Act and the move to start registration of DAOs […] are especially concerning given the capacity constraints and questions regarding the understanding of the authorities to adequately regulate and supervise these initiatives.”

Before the implementation of a new Compact of Free Association with the United States in 2024, fiscal reforms are necessary for the RMI, according to the IMF, and fintech initiatives “pose risks to the financial integrity of the RMI.”

The RMI enacted legislation recognizing DAOs as legal entities and then permitted their incorporation as limited liability companies in 2022, both of which made the IMF extremely uncomfortable.

It stated that the IMF advised the RMI to suspend DAO registration. The IMF advised the nation to establish a monetary authority first.

It is unclear if any DAOs have yet been registered with the RMI. The nation is also at risk of losing its last U.S. dollar correspondent account due to concerns about its fintech and “offshore sector” regarding AML and CTF.

Loss of correspondent accounts, also known as derisking, isolates a nation from the global economy and is controversial from a social justice standpoint.

Additionally, the IMF advised the RMI to eliminate the SOV, its central bank digital currency (CBDC). While the IMF is generally favorable toward CBDC, it also urged the RMI to abandon its CBDC project in its 2021 consultation, citing the country’s lack of readiness. The UAV has not yet launched.