A No-Confidence Challenge Facing President Who Tried to Make Crypto a Second Form of Legal Tender in Her Country

On Monday (5 November 2018), eight senators introduced a vote of no confidence in Hilda Heine, the President of the Republic of the Marshall Islands, which is an island nation (comprised of more than 1,100 islands and islets) near the equator in the Pacific Ocean. The vote has been scheduled to take place on November 12th (since the Marshallese constitution requires a vote to be held five to ten days after a no confidence motion has been lodged).

It all started back in February 2018, the same month that the government of Venezuela launched its own (oil-backed) cryptocurrency (called the Petro) as a means of escaping U.S. sanctions. As reported by Bloomberg, in late February, members of the Marshallese parliament (Nitijela) voted to proceed with a plan to create a national cryptocurrency called the Sovereign (SOV) that would serve as a second official form of legal tender (along the U.S. dollar). David Paul, minister-in-assistance to the president, told Bloomberg in a phone interview that the government would "arrange an initial coin offering and exchanges will be allowed to apply to trade the currency,"

On 26 February 2018, the country passed the "Declaration and Issuance of the Sovereign Currency Act 2018", the purpose of which was "to declare and issue a digital decentralized currency based on blockchain technology as legal tender". The bill stated that this new cryptocurrency, called the Sovereign (SOV), would be issued by the Ministry of Finance and introduced via an initial coin offering (ICO).

Then, on 10 September 2018, the International Monetary Fund (IMF) released a 58-page report in which it warned the Republic of Marshall Islands (RMI), a small sovereign island nation in the Pacific Ocean, not to go ahead with the plan to launch of SOV, saying that using crypto as a second form of legal tender would be risky:

"The issuance of a decentralized digital currency as a second legal tender would increase macroeconomic and financial integrity risks, and elevate the risk of losing the last U.S. dollar correspondent banking relationship."

The IMF report went on to say that the potential costs of this plan far outweighed the potential benefits:

"The potential benefits from revenue gains appear considerably smaller than the potential costs arising from economic, reputational, AML/CFT, and governance risks. In the absence of adequate measures to mitigate them, the authorities should seriously reconsider the issuance of the digital currency as legal tender."

According to Radio New Zealand, at yesterday's session of parliament, Senator Casten Nemra, a former president of the Marshall Islands, had several criticisms of the Heine administration, the most notable being that "the plan to establish a digital currency as legal tender had tainted the country's reputation and generated criticism from major financial organizations, including the International Monetary Fund and the US Treasury Department."

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BBC: Facebook Planning to Launch ‘GlobalCoin’ in Q1 2020

Siamak Masnavi

Social networking giant Facebook is planning to launch its own cryptocurrency (internally dubbed "GlobalCoin") and crypto-powered global payments network (internally called "Project Libra") worldwide by Q1 2020, according to a report published earlier today by BBC News, the world's largest broadcast news organization.

Project Libra's Origin Story

  • 8 May 2018: In a post on Facebook, David Marcus, the former head of Messenger, who was at that time also a board member (since December 2017) of crypto exchange Coinbase, revealed that he was leaving that role to set up a new group focused on exploring applications of blockchain technology across the whole of Facebook.
  • 13 December 2018: Cheddar reported that Facebook’s blockchain group is planning to "potentially disrupt the entire payments industry":

"At a private dinner Facebook hosted during a recent crypto conference, one attendee told Cheddar that Facebook employees pitched the idea of creating a decentralized digital currency for the social network’s 2 billion users."

  • 21 December 2018: Bloomberg reported that Facebook was creating its own cryptocurrency (a stablecoin) for money transfers within its highly popular messaging app WhatsApp.
  • 28 February 2019: The New York Times confirmed Bloomberg's earlier story, and said that, according to its sources, this project was "far enough along that the social networking giant has held conversations with cryptocurrency exchanges about selling the Facebook coin to consumers."
  • 8 April 2019: Nathaniel Popper, one of the two journalists who wrote the report in the New York Times, provided this update (on Twitter) about Facebook's cryptocurrency project:
  • 2 May 2019: The Wall Street Journal reported that Facebook was "recruiting dozens of financial firms and online merchants to help launch a cryptocurrency-based payments system," and that the core part of this initiative (code-named "Project Libra") is "a digital coin that its users could send to each other and use to make purchases both on Facebook and across the internet." Furthermore, this report said that, according to people familiar, Facebook was talking to "financial institutions including Visa Inc., Mastercard Inc. and payment processor First Data Corp." about investing in this project.
  • 17 May 2019: A report by Reuters said that FinTech company Libra Network was registered in the Republic and Canton of Geneva on May 2. Looking at the entry for Libra Networks, which was published on May 7 in the Swiss Official Gazettte of Commerce (SOGC), tells us:
    • Libra Networks LLC (registration number: CHE193533388) has its registered office in Geneva.
    • According to the English translation, the stated purpose of this company is "provision of services in the fields of finance and technology, as well as the development and production of related software and infrastructure, particularly in connection with investment activities, the payment operation, the financing, identity management, data analysis, big data, blockchain and other technologies."
    • The share capital is CHF 20,000 (100 shares, each with a nominal value of CHF 200); all of the shares are owned by Facebook Global Holdings II, LLC.

Facebook's Stablecoin: GlobalCoin

Here is what we have learnt from the BBC News report:

  • Facebook "is planning to set up a digital payments system in about a dozen countries by the first quarter of 2020."
  • The plan is to start testing the new cryptocurrency (some kind of stablecoin), GlobalCoin, by the end of 2019.
  • Facebook has been getting "advice on operational and regulatory issues" from the UK's central bank governor Mark Carney (whom Facebook founder and CEO Mark Zuckerberg reportedly met in April) and from U.S. Treasury officials.
  • Facebook is also in talks with global remittance firms such as Western Union "as it looks for cheaper and faster ways for people without a bank account to send and receive money."

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