The International Monetary Fund (IMF) suggests that digital currencies, both private and public, could play a significant role in improving financial inclusion and enhancing financial services in the most remote and dispersed nations of the Pacific Ocean.

On March 25, the IMF released a report discussing the potential impact of stablecoins and central bank digital currencies (CBDCs) on the economies of Pacific Islands countries.

In a 58-page document, IMF senior economic experts underscored the challenges faced by numerous countries and microstates in the Pacific Islands region:

"The limited and unequal access to financial services contributes to persistent poverty and inequality. Additionally, these countries heavily rely on remittance flows, making them disproportionately affected by the decline in correspondent banking relationships."

The IMF believes that these nations could benefit from embracing the digital currency revolution by developing payment systems, enhancing financial inclusion, and addressing the challenges of declining correspondent banking relationships.

While the report predominantly emphasizes the potential of CBDCs, which is strongly supported by the IMF, it also acknowledges the role of private stablecoins backed by foreign currencies.

The IMF advises smaller Pacific Island countries (PICs) against issuing their own sovereign stablecoins due to limited oversight capabilities. However, the report specifically mentions Tether (USDT) as the only private stablecoin.

Overall, the report suggests that the most suitable option for PICs with existing national currencies and mature banking systems is a two-tier CBDC model, wherein the central bank issues the digital currency but delegates operational tasks to private intermediaries. For other countries:

"Foreign currency–based stablecoins could serve as a viable alternative, provided there are robust regulation and supervision frameworks in place."

As depicted in the summary of current financial systems in PICs, none of them officially utilize private cryptocurrencies or stablecoins, with only a few, such as Fiji, Palau, Solomon Islands, and Vanuatu, exploring the possibility of implementing CBDCs.

The IMF continues to advocate for the adoption of CBDCs on an international scale. In November 2023, IMF Managing Director Kristalina Georgieva urged the public sector to be prepared to deploy CBDCs, suggesting they could replace cash and coexist with private currencies as a safe and cost-effective alternative.