Marshall Islands adopt cryptocurrencies to pay for universal basic income

Source: PortaldoBitcoin Original Title: Marshall Islands adopt cryptocurrencies to pay for universal basic income Original Link: Access to financial services is changing in the Republic of the Marshall Islands (RMI), as the island nation begins to use cryptocurrencies to support its citizens.

Last month, some Marshallese received paper checks through ENRA, the RMI’s universal basic income program, while others saw a token called USDM1 appear on Lomalo, a “citizen digital wallet” based on Stellar and developed by the corporate blockchain platform Crossmint.

As a fully backed sovereign token, it generates yield and was designed to serve as a medium of exchange for the 40,000 people of the Marshall Islands, according to Paul Wong, Director of Special Projects at Stellar Development Fund (SDF).

“Unlike a stablecoin, where the issuer earns the yield, in this case, the holder of the asset receives the yield,” he said, describing USDM1 as, in practice, a money market fund.

The distinction between a stablecoin and a sovereign bond may be less relevant to Lomalo users, but USDM1 shows how governments can offer digital assets with dual functions while avoiding issues that could arise, for example, if a stablecoin lost its parity.

“All they want to know is if there’s money in the account,” said Crossmint co-founder Rodri Fernandez Touza, noting that Lomalo was created with simplicity in mind.

Touza classified common crypto user features, such as seed phrases and “strange pop-ups,” as unfeasible for the general public. Therefore, these elements are not present in Lomalo, where Crossmint itself generates and manages user credentials.

USDM1 payments are made quarterly to eligible RMI citizens. This creates “an opportunity to digitize the economy,” Wong said, in a country that is already dollarized and served by the US Postal Service.

The Challenges of the Marshall Islands

In the Marshall Islands, cash is dominant — but not necessarily by choice.

A white paper related to the launch of USDM1 describes how the country increasingly relied on cash after several banks left the territory following the 2008 global financial crisis.

With subsequent reforms altering the risk-return relationship, many concluded that maintaining correspondent banking relationships with the Marshall Islands was not worth it.

Today, the country has only one correspondent bank offering services such as domestic transfers, with a few branches scattered across the islands. It’s not uncommon for citizens to travel long distances just to cash a check, according to the document.

“If they lose this correspondent bank, the country would be disconnected from the global financial system,” Wong said. “This instrument offers an alternative.”

Money in Shipping Containers

Although the Marshall Islands cover a vast area, comparable in size to Mexico, the white paper highlights that SpaceX’s Starlink has made internet access widely available. Still, the country depends on physical cash, which often arrives via shipping containers.

“Even if you want to make everything work with cash, there are many moments when economic limitations prevent people from accessing money,” Touza explained, noting that some citizens travel long distances by water just to find an empty ATM.

The adoption of USDM1 by the RMI continues SDF’s efforts to expand access to financial services in hard-to-reach regions, including conflict-affected areas. The development of USDM1 was funded by a donation of several million dollars from SDF.

According to Wong, SDF is currently working with the German government to support payroll services for healthcare professionals in the Middle East. The foundation also collaborates with the United Nations Development Programme on various cash distribution projects.

In partnership with a UN refugee agency, SDF helped establish a aid distribution system in Ukraine supported by the stablecoin USDC. SDF partnered with the Ukrainian government in 2021, resulting in the creation of a payment system.

Wong stated that this work influenced SDF’s approach to developing USDM1, including the idea that each individual is treated as the sole beneficiary of their digital funds. In practice, this can impact long-standing social dynamics for marginalized groups.

“This physical threat risk is much lower,” Wong said. “When you distribute universal basic income to a woman, the money doesn’t go into a joint account where, historically, a man used it for purposes other than family welfare.”