By Ani Allbutt Golightly
Digital payment systems emerge as substitute for inadequate regional banking infrastructure
The Republic of the Marshall Islands has launched the world’s first blockchain-based universal basic income program, signaling a radical shift in how small Pacific nations are responding to the collapse of traditional banking infrastructure across the region.
Starting late November, all 33,000 citizens of the Marshall Islands will receive US$800 annually through a digital wallet called Lomalo, which utilizes USDM1—a US dollar-pegged stablecoin backed by short-term US Treasury bonds. The payments, distributed quarterly at $200 per person, can also be received via traditional check or direct bank deposit.
“By introducing a secure digital option alongside our traditional methods, we are strengthening our financial systems and ensuring that no community is left behind,” Finance Minister David Paul told international media following the announcement.
The initiative represents more than a technological experiment. It’s a pragmatic response to a crisis that has left vast swaths of Pacific communities financially isolated.
Banking Deserts in Paradise
Image Credit. LIRNEasia. BSP is the largest bank in Papua New Guinea and the South Pacific region, operating in Fiji, Solomon Islands, Samoa, Tonga, Cook Islands, and Vanuatu.Â
For years, commercial banks have been retreating from the Pacific Islands, citing thin profit margins and the escalating costs of meeting international anti-money-laundering standards. The withdrawal has left many island nations struggling to maintain basic financial services.
“Basic services like branches, ATMs and remittance channels are thin, expensive and unreliable,” notes researcher Philippa Taylor from the Lowy Institute, who has analyzed the region’s banking challenges. “As banking networks continue to recede, more Pacific governments are likely to look at digital wallets and stablecoin-like instruments as practical ways to move money to citizens who don’t have bank accounts and who live in remote areas.”
The problem is particularly acute across the scattered atolls of the Marshall Islands, where geographic dispersion makes traditional banking infrastructure prohibitively expensive. Services that Australians take for granted—opening an account, accessing an ATM, or sending money to relatives—remain out of reach for large segments of the population.
“What’s the Purpose of a Huge Trust Fund?”
The Marshall Islands’ UBI program draws funding from a substantial trust fund established through its Compact of Free Association with the United States. For Finance Minister Paul, the initiative addresses a growing disconnect between government wealth and citizen wellbeing.
“We didn’t see the impact of it, as far as the majority of the Marshallese are concerned,” Paul explained to RNZ Pacific. “All this money goes into financing the government, infrastructure development and other things, but people continue to see that their lives are not improving, their economic situations are not improving.”
The minister described UBI as an opportunity to deliver tangible benefits without imposing new taxes, funded by expected continued growth of the trust fund. “What is the purpose of having a huge trust fund when you know we have all these ongoing issues, that we need assistance for?” he asked.
The timing is strategic. Rising global inflation has hit Pacific Island nations particularly hard due to their dependence on imports and limited domestic production capacity. Paul views the UBI as a crucial safety net during economic turbulence beyond local control—and potentially a way to stem outward migration.
A Sovereign Digital Bond, Not Just Crypto
Despite headlines labeling USDM1 a “stablecoin,” the Marshall Islands government insists the instrument represents something more substantial: a sovereign digital obligation.
“[USDM1’s] legal structure, enforceability, and redemption mechanics are consistent with the IMF’s long-standing treatment of collateralized sovereign obligations, not with privately issued digital tokens,” Paul told Cointelegraph, emphasizing that the instrument is “issued under New York law and backed 1:1 by short-term US Treasuries held in a bankruptcy-remote account held by a US-based Qualified Custodian.”
The International Monetary Fund has characterized USDM1’s structure as that of a “digital sovereign bond”—a distinction that places it closer to government debt instruments than cryptocurrency, even if it operates similarly in practice.
IMF Skepticism and Government Response
Not everyone celebrates the initiative. The IMF has urged the Marshall Islands to reconsider, warning that the expansion of digital assets alongside the country’s 2022 decision to recognize Decentralized Autonomous Organizations as legal entities could carry “adverse macro-fiscal and financial integrity implications.”
The fund recommended scaling back to a “more targeted scheme to those who need it the most” rather than a universal program.
Paul has stood firm on the universal approach. “We’re working with the likes of the IMF to also help track this in real time,” he said. “And also we’re working with the likes of the ADB and the World Bank to track the social impact of this in real time.”
The minister also rejected concerns about inflation, arguing that the relatively small UBI amounts matter far less than the relentless force of global price increases that small, import-dependent economies cannot control.
A Pacific Trend, Not an Isolated Experiment
The Marshall Islands isn’t alone in exploring digital payment solutions. Neighboring Pacific nations are implementing similar programs as traditional banking becomes increasingly unreliable.
Palau has deployed a stablecoin built on the XRP Ledger for government employee payments. The Solomon Islands’ central bank launched Bokolo Cash for peer-to-peer transactions and retail payments in the capital, Honiara. These initiatives share a common thread: pragmatic responses to financial infrastructure gaps rather than ideological embraces of cryptocurrency.
“What is emerging in the region is not a story of crypto hype but a response to the erosion of banking infrastructure that has left Pacific states searching for viable mechanisms to deliver core financial services,” notes analysis from the Lowy Institute.
Can Other Nations Replicate the Model?
While the Marshall Islands benefits from unique advantages—particularly its substantial US-backed trust fund—the fundamental challenge of banking accessibility affects Pacific nations broadly.
“The Marshall Islands is in a unique position with a vast pool of American cash to draw down on, an advantage that other Pacific island countries lack,” Taylor observes. “Other Pacific countries with similar banking constraints but without a comparable trust fund might still adopt digital payment rails for more targeted welfare schemes or social transfers, but replicating a fully universal, permanently funded UBI of this kind would be harder.”
The reliability question is less about ‘blockchain’ as a technology and more about governance and supervision.
Looking Forward
Citizens registered for the UBI can set up Lomalo wallets and transfer funds to other registered users, creating a nascent digital payment ecosystem within the Marshall Islands. The government plans to monitor adoption rates, usage patterns, and economic impacts in collaboration with international financial institutions.
For the Pacific region, the Marshall Islands experiment represents a test case for whether digital payment systems can substitute for collapsing traditional banking—and whether small island nations can leapfrog infrastructure gaps through technological innovation.
The stakes extend beyond financial inclusion. As climate change threatens low-lying Pacific atolls and economic pressures drive migration, programs like the UBI aim to provide stability and reasons to stay. Whether digital currency can help secure the future of these island nations remains to be seen, but for Finance Minister Paul and the citizens of the Marshall Islands, doing nothing was never an option.
“People continue to see that their lives are not improving,” Paul reflected. In a world of rising seas and rising prices, the willingness to experiment with new solutions may be the most valuable currency of all.
Attribution: This article draws on research and analysis from the Lowy Institute’s Interpreter  in – “Stablecoins for a universal basic income: The Pacific Islands model” by Monique Taylor.
Additional reporting from RNZ Pacific, Cointelegraph, and IMF publications. Analysis and commentary by  FNGN Publisher, Ani Allbutt-Golightly.
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