Palau Seeks to Create its First Government-Backed National Cryptocurrency

Palau, with a population of about 18,000 people, is unlikely to come to mind when people think of places on the cutting edge of technological progress. 

However, the tiny Pacific island nation, located around 900 kilometers (559 miles) west of the Philippines, is on a daring mission to lead the way in official cryptocurrency adoption and support. 

Palau is working on plans to establish the world’s first government-backed national stablecoin in the first half of 2022, thanks to a cooperation with Ripple, a cryptocurrency startup based in the United States. 

Stablecoins differ from other cryptocurrencies in that their value is fixed to a real-world asset such as the US dollar. They function on the same digital ledger technology, or blockchain, like other cryptocurrencies. For proponents of stablecoins, this gives them an advantage over extremely volatile cryptos like Bitcoin, whose price has fluctuated between $5,000 and $65,000 in the last 20 months alone. 

Surangel Whipps, Jr, the president of Palau, has pushed for the introduction of a stablecoin as a way to make life easier for inhabitants and diversify the economy away from tourism, which amounted to approximately half of the country’s gross domestic product  (GDP) before the outbreak. 

Palau’s GDP declined by 8.7% last year, with a further contraction of 17.6% projected in 2021, owing mostly to the collapse of travel due to COVID-19. 

The Asian Development Bank gave the government a $25 million loan in April to keep it solvent. 

Ripple, based in San Francisco, has promised to engage with Palau to investigate “a USD-backed stablecoin,” cross-border payment techniques, and other XRP Ledger features. 

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