The Marshall Islands’ plans to accept a digital currency called SOV as its official currency is shaking up the digital currency markets, and it’s happening thanks to an Israeli startup called Neema.
On leaving the Pacific island nation this week, Israeli entrepreneur Barak Ben-Ezer, who is one of the owners of Neema, wrote: “Thank you, Marshall Islands, for enabling us to help you become the first country adopting a cryptocurrency as legal tender. As a practical matter, SOV then becomes real money from a legal standpoint. Finally, without capital gains tax, without a securities regulator claiming that the currency is stock. SOV is a sovereign currency like the dollar, the euro and the yen.”
Cryptocurrency is an encrypted digital currency.
The Marshall Islands hopes to raise at least $30 million in the venture, about half of which will go to Neema. The country is creating the digital currency to raise some hard cash to pay bills and boost the economy.
Ben-Ezer’s efforts to turn a digital currency into an official currency required finding a country willing to adopt it as an official form of legal tender. “I looked for a country that would be open to the idea,” he said. “I developed a list of all of the countries that I thought would accept the cryptocurrency as legal tender.”
“Up front, I excluded countries such as Sweden and went with the smallest countries in the world that not many people had heard about and that vote with us [Israel] in the United Nations. The smaller that a country is, the easier it would be for it to adopt such a currency. I [also] added another parameter: that the country not have a currency of its own, which is how I got to the Marshall Islands,” Ben-Ezer told TheMarker last week.
The island nation said it became the first country in the world to recognize a cryptocurrency as its legal tender when it passed a law last week to create the digital Sovereign, or SOV.
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The cryptocurrency will have equal status with the U.S. dollar as a form of payment in the nation of 60,000. The Marshall Islands says the SOV will require users to identify themselves, avoiding the anonymity that has kept bitcoin and other cryptocurrencies from gaining support from governments.
Such an undertaking also requires legal advice, and came from the Israeli law firm Yigal Arnon & Co., which represents Neema.
One of the members of the legal team, Yuval Shalhevet, told TheMarker: “The central bank of the Marshall Islands was involved in the process, but since they don’t have a currency, the rulers of the Marshall Islands had never dealt with monetary regulation. We helped write the law.”
The country’s officials were particularly concerned that the move not turn the Marshall Islands into a money-laundering haven, concerns that were allayed by the safeguards requiring purchasers of the currency to identify themselves, Shalhevet said.
Lawmakers passed the cryptocurrency measure last Monday, following five days of heated debate in the parliament. It’s unclear when the nation will begin issuing the SOV.
Some lawmakers expressed concern about the large amount of the new currency that would go to the Israeli company, while others argued the country had urgent needs and the cash would help. Leaders hope the SOV will one day be used by residents for everything, from paying taxes to buying groceries. The country also intends to hand out 2.4 million SOVs to residents.
“This is a historic moment for our people, finally issuing and using our own currency, alongside the USD (U.S. dollar),” President Hilda Heine said in a statement. “It is another step of manifesting our national liberty.”
The Marshall Islands is closely aligned with the United States under a Compact of Free Association and uses the dollar as its currency. Under the compact, the United States provides the Marshall Islands with about $70 million each year in assistance. The Americans run a military base on Kwajalein Atoll.
The Associated Press contributed to this report