The launch of the UBI program, utilizing a “digital sovereign bond,” occurred two months after the IMF warned against the island nation using an “untested” digital asset.
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Update (Nov. 18 at 12:10 am UTC): This article has been updated to include a statement from David Paul.
The Republic of the Marshall Islands announced that it would allow citizens to access funds through a government-issued digital asset as part of the nation’s Universal Basic Income (UBI) program.
In a Wednesday announcement shared with Cointelegraph, the government of the Pacific island nation said it had launched a digital wallet called Lomalo, which will utilize the US dollar-pegged stablecoin USDM1 to enable citizens to access the UBI program. According to the government, the first disbursement of funds will occur in late November, allowing citizens to access them through their wallet, by physical check, or via direct deposit.
“By introducing a secure digital option alongside our traditional methods, we are strengthening our financial systems and ensuring that no community is left behind,” said David Paul, finance minister for the Marshall Islands.
Neighboring Pacific island nations have rolled out similar programs over the years, including Palau’s for government employees, and the central bank of the Solomon Islands’ Bokolo Cash for peer-to-peer transactions and retail payments in the nation’s capital, Honiara.
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“Citizens will be able to transfer to other registered Lomalo users,” a spokesperson for the Marshall Islands’ finance minister told Cointelegraph. “Right now, only citizens registered for the UBI can set up a wallet.”
The launch of the digital wallet as part of the islands’ UBI program followed warnings from the International Monetary Fund (IMF). In 2023, the group to reconsider its central bank digital currency program, then known as SOV.
“Progress on rolling back past digital initiatives is welcome,” the IMF in a Sept. 10 notice. “Current plans to issue a ‘digital sovereign bond’ carry significant risks relative to perceived returns, which cannot be effectively mitigated given lack of pre-requisite capacity. Thus, in the mission’s view, the authorities should not proceed with the global launch as planned.”
The IMF said that the expansion of Decentralized Autonomous Organizations (DAOs), which the Marshall Islands in 2022, and the launch of the UBI program using the “untested” USDM1 could have “adverse macro-fiscal and financial integrity implications.” The fund urged the government to scale back the UBI program to a “more targeted scheme to those who need it the most.”
In response to the IMF warning, Paul told Cointelegraph that the Marshall Islands government was “in active dialogue with the IMF regarding the UBI programme and USDM1,” and that the digital sovereign bond was “issued under New York law and backed 1:1 by short-term US Treasuries held in a bankruptcy-remote account held by a US-based Qualified Custodian.”
“[USDM1’s] legal structure, enforceability, and redemption mechanics are consistent with the IMF’s long-standing treatment of collateralized sovereign obligations, not with privately issued digital tokens,” said Paul. “The instrument was intentionally designed to mirror the Brady-style framework historically supported by the IMF.”
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