Pacific nations are starting to embrace the digital finance and blockchain ‘revolution’, but there are risks that will need to be addressed, Ben Bohane writes.
Throughout human history, many forms of money have been developed to allow trade; from simple bartering of goods like animals and grain, to tobacco and glass beads, gold and silver coins, and today’s paper money. In many Pacific islands, before European coinage was introduced, communities traded sea shells, carvings and food.
Papua New Guinea’s Hiri Moale festival each September celebrates the traditional exchange of clay pots from Motu villages in Papua for sago harvested in the Papuan Gulf. The Kula Ring of the Trobriand islands underpin trade and personal relationships while Yap island in Micronesia is famous for its giant stone ‘coins’, the largest physical currency in the world.
Now money is being reinvented again as decentralised finance and cryptocurrencies take off globally. Much of our daily life has become digitised so perhaps it is no surprise that finance is next – as the Pacific is discovering.
Micronesia is at the forefront, with Palau announcing it will be the first nation in the world to adopt a digital ‘stable coin’ as currency, also known as a Central Bank Digital Currency (CBDC), pegged to the United States dollar (USD).
Palau President Surangel Whipps Jr told media in late November that citizens would soon be able to pay with their phone, and government employees will receive their salary instantly rather than waiting days or weeks.
“Why not make it that simple?,” President Whipps said. “Having a digital currency in some ways kind of eliminates the need for a bank.”
In the latest Pacfic Wayfinder podcast, Lord Fusitu’a, a former Member of Parliament from Tonga, said one of the main reasons he wants to introduce Bitcoin there is so the country can save on high remittance fees taken by services like Western Union.
“For us it answers the GDP-remittance problem. Tonga is the most remittance-dependent economy on the planet at 40.1 per cent of our GDP. So nearly half of our country’s productivity is based on remittances…by using Bitcoin on the Lightning network it means if you send $100 from Sydney you’d receive $100 in Tonga, instead of losing up to $30 in fees.”
Lord Fusitu’a is leading the charge to introduce Bitcoin as legal tender in Tonga following the example of El Salvador, which earlier this year became the world’s first nation to make it their national currency. It is a risky move, given the volatility of Bitcoin and other cryptocurrencies, but one that its president believes will help the struggling nation emerge from decades of debt, International Monetary Fund restructures, inflationary pressures on the United States dollar and high remittance fees.
Bitcoin was the first to develop ‘blockchain’ technology which is now being utilised in many applications beyond a currency. On the Pacific Wayfinder podcast, Josh Hallwright, Blockchain Advisor to Oxfam International, argued that blockchain has multiple uses and will increasingly be utilised in the development sector and disaster response.
Last year, in the wake of Cyclone Harold which hit Vanuatu and other nations, international aid agencies were not able to deploy and respond as they normally would due to COVID-19 border restrictions. As a result, Oxfam pioneered a unique response and sent money via digital blockchain platforms directly to affected people on the ground.
“Oxfam is a very strong supporter of not giving people stuff after a disaster, but giving people money or vouchers to use…You give people the choice of what they want to spend their money on and to recover from a disaster. It’s usually faster, cheaper and cuts out some of those issues around supply chains for the humanitarian stock,” Hallwright said.
Cryptocurrencies and digital payments are also seen as an opportunity for the ‘unbanked’ in a region where, for instance, 80 per cent of Papua New Guineans don’t have a bank account.
Despite Lord Fusitu’a and Hallwright’s belief in the benefits of adopting digital finance and blockchain for the Pacific, there are those among law enforcement agencies who worry that cryptocurrencies like Bitcoin will be utilised by criminals to avoid financial tracking. They also argue that digital currencies have helped fuel a surge in ransomware attacks. Additionally, some policymakers warn that cryptocurrencies will allow countries such as North Korea to avoid international sanctions.
Lord Fusitu’a acknowledges such concerns, but argues that most criminals continue to prefer physical cash payments and that the majority of money laundering is done via major banks, some of which have been fined for enabling the proceeds of crime.
Regardless of lawmakers concerns, the benefits of digital currencies are increasingly becoming a focus for countries around the world. Many central banks, from the United States and European Union, to Korea and Australia, are in the process of developing CBDCs to launch soon.
The impact digital currencies can have is perhaps most evident in China’s digital yuan, soon to launch internationally. Importantly, the digital yuan is likely to be the primary currency of exchange in China’s Belt and Road projects, putting it at the centre of trade and investment in the Asia Pacific, and marking the most serious threat to the USD’s global reserve currency status in decades.
A financial revolution is under way, changing the nature of trade and cross-border payments, for better and worse, in ways we are only just beginning to see. It will therefore be necessary for policymakers throughout the Pacific to get a firm understanding of the opportunities and risks cryptocurrencies present in order to ensure they can be at the forefront of this revolution.
If they do not, they could find themselves making costly missteps in the volatile waters that cryptocurrencies currently inhabit, or worse yet, left behind as larger nations and criminal actors take advantage of the technology and utilise it for their own ends.