While it is not in the interest of this blog to talk about digital currencies, the Republic of the Marshall Islands is of interest (as it is a great jurisdiction to incorporate into). This year the country adopted the: Declaration and Issuance of the Sovereign Currency Act 2018.
Results of the investigation:
- It appears that the President of the Marshall Islands (Hilda Heine) has (unfortunately) been convinced by an Israëli startup (Neema) that the project was a way to get US$30 million into the country’s budget ;
- With 12 million of the new currency units kept by the government, and distributed to various Trust Funds (National Trust Fund, Green Climate Fund, Nuclear Legacy & Healthcare Fund, and the Resident-Citizen SOV Allocation Fund) : it is already Christmas with ? Neema ? ;
- Many months has passed: and still no signs of the crypto currency labelled the “Sovereign that is real money” ? ;
- The money supply is programmed to be increased by 4% per year, according to the k-percent rule from the economist Milton Friedman (whereas the goal of that rule was to target a percentage of inflation) and this theory (of course) has never been tested… ;
- Having a free-floating rate between this digital currency and the US dollar (the other official legal tender of the country) is like returning to bimetallism in its time: and history has shown that it NEVER worked. It is very easy to understand why: just like you cannot transform Gold into Silver, you cannot transform the digital currency into US dollars [§304(5) of the law “The SOV is non-reedemable“], so: one of the currency will always be in excess of the other ;
- Only one (poor) country has a two currencies system in the world: Cuba ;
- The crypto market is currently crashing big time (mid-November 2018) ;
- The blockchain is a fantastic waste of: electricity, energy, disk space ;
- The blockchain is to be private anyway so why have one? ;
- The blockchain is very slow compared to a centralized database ;
- If you ask too much questions in their Telegram group: you just get banned from the group immediately, and in any case: they have no answers to provide you when asked, they are too busy censoring their potential (idiots?) customers ;
- If the currency goes up against the US dollar: the government is losing out on seigniorage and should (quickly) sell more SOV … But at some point there will be no more SOV to sell (because of the k-percent rule). At this point the value of the SOV in the free market can either:
- go down against the US dollar (see next point: nobody will buy it) and the government will not be able to spend it (bye bye Trust Funds) ;
- or keep going up against the US dollar: and the government is back into the selling loop… until ultimately the value goes down anyway.
- If the currency goes down against the US dollar: nobody will buy it (whomever the seller is) turning every holder into a seller (who wants to keep something that is losing value?).
- From this little circus explained above: it is clear that the best interest of the government is to keep the rate pegged to the US dollar.
But this small country can still fix things up :
- The Cabinet has the ability to pick the “Appointed Organizer”: Neema should be ditched at this point~ and a big company like Paypal should be picked (for them it’s easy: they just have to create a new currency of account, the KYC rules are already there, no blockchain, no waste) ;
- Peg the digital currency to the US dollar: while it is not reedemable, everything will be clear and stable for every economic partaker ;
- Repeal the k-percent rule [§305(4) of the law]: money should be created (or destroyed) on demand (isn’t that what the free-market is about?).