Palau taps Ripple to launch government-backed stablecoin

abdelaziz Fathi

The Republic of Palau has joined hands with Ripple to initiate a pilot project for the world’s first government-backed stablecoin, a viable alternative to central bank digital currencies (CBDCs). The San Francisco-based will provide the island country with technical, business, design and policy support for its national stablecoin,

The move comes as more private and public entities are showing interest in adopting Ripple’s products after a landmark ruling determined its XRP token was not necessarily a security.

The collaboration between the Pacific nation and Ripple dates back to 2021. While the launch of the stablecoin was initially scheduled for the first half of 2022, the pilot program is set to begin its first phase. The trial involves nearly 200 government employees and local merchants in Palau.

The stablecoin, known as the US-backed Palau Stablecoin (PSC), will be built on Ripple’s carbon-neutral blockchain, the XRP Ledger (XRPL). The latter has a proven track record of processing millions of transactions and provides privacy and security for tokenized assets. The stablecoin is designed to be pegged to the US dollar, with each PSC having a value of $1, backed by a 1:1 reserve of fiat currency.

“By digitizing our currency, we hope to mobilize our economy and government processes to improve financial transactions and empower our citizens. As a smaller country, Palau has the advantage to be innovative and nimble in releasing our stablecoin,” said President of the Republic of Palau, Surangel S. Whipps, Jr. “We trust in Ripple’s long-standing expertise in CBDCs and blockchain technology, as well as the carbon-neutral XRP Ledger to help create our national digital currency that will offer our citizens greater financial success,” the President added.

To manage the entire lifecycle of the stablecoin, including distribution and transactions, Palau will utilize the Ripple CBDC Platform, which enables central banks to issue their own digital currencies. The Ministry of Finance of Palau will be responsible for the entire process, including the issuance and redemption of stablecoin units and ensuring the 1:1 reserve is always maintained.

Ripple believes that the Palau Stablecoin will promote greater financial inclusion, reduce transaction fees for citizens, lower foreign exchange costs, and accelerate payment processing.

The latest partnership with Palau, a group of over 300 islands in the Micronesia region of the western Pacific Ocean, comes after a New York judge delivered a watershed ruling for Ripple. The judge determined that selling XRP on exchanges does not qualify as an investment contract, contesting claims from the SEC against the company.

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