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Trailblazing: Palau Stablecoin set for pilot launch this month

By Ongerung Kambes Kesolei

Koror—Palau is taking steps toward launching its stablecoin project and has called for volunteers from the government payroll, showing its commitment to implementing its core digital asset strategy into play. The project is set for launch this month in a limited and controlled pilot phase.

The Palau Stablecoin (PSC) is a digital currency issued and managed by the Palau Ministry of Finance and fully backed by U.S. dollar cash balances. It is a token, a digital asset fixed in value to the U.S. dollar. Users will hold their PSC using a digital wallet, which can be used like a fiat currency, a type of currency that is not backed by a commodity like silver or gold.

In a memorandum last month, Palau’s Minister of Finance, Kaleb Udui Jr., called for 200 volunteers among executive branch employees to participate in the stablecoin project. This comes after the project suffered several delays last year.

“We are finalizing the digital wallet and some other details, and so far, the project is on track for a full pilot launch in March,” said Jay Anson, director of the Palau Digital Residency Office and lead official on the stablecoin project. “This is a very limited and controlled pilot focused on testing the basic capabilities and functionality of the solution design. Limiting participation to government employees ensures AML/KYC (Anti-Money Laundering/Know Your Customer) compliance and responsiveness to the different feedback mechanisms in place.”

The pilot program is in partnership with Ripple Labs to explore the feasibility and benefits of the stablecoin – a U.S. dollar-backed digital currency program using the XRP Ledger, a decentralized platform allowing for peer-to-peer asset transfer. Ripple Labs’ Central Bank Digital Currency research and development program will provide the pilot funding.

The pilot is planned for a three-month period, during which it will be tested in a limited scope and to collect participant feedback. In the pilot phase, participating consumers can make in-store stablecoin payments and monitor their balance. However, a consumer's purchase decision will be final because there’s no capability for the store to return PSC to a customer as part of a returns process.

Each participant will be issued a digital wallet with $100 worth of Palau Stablecoins to spend at participating vendors that will accept the 100 PSCs as equivalent to $100 based on a redemption rate of 1PSC to $1.

According to Anson, only one vendor is on board for the pilot project. Surangel & Sons, President Surangel Whipps Jr.'s family-owned business, and one of the largest businesses on the island, will be the sole participant in the project. Two other large Palau supermarkets have yet to come on board the program.

The Palau Ministry of Finance is all in on Palau Stablecoin. Udui said the stablecoin project explores ways to make payments easier and more affordable for Palau’s economy. Unlike other online-based payment services like PayPal or Venmo, PSCs won’t involve user fees.

“The goal is to make financial services more widely available through digital access to under-served communities and socioeconomic groups. Another goal of Palau Stablecoin is to reduce service charges for transaction costs like cash transfers (and) credit card payment fees,” the Ministry of Finance said in a FAQ.


“The implementation of PSC will increase the efficiency of financial services across the Republic of Palau. A benefit of stablecoin use is to help reduce the energy consumption it takes to transport currency, for example, between stores and banks or even between family members. This will help reduce the Republic of Palau's carbon footprint,” the FAQ added.

The Ministry of Finance believes that the stablecoin will provide a universally available value store and payment option for Palau citizens that is not dependent on a commercial institution or banks, does not include banking fees, and accelerates the transaction and payments time - think a digital form of physical cash.

“This can help avoid “late fees” and other bank surcharges. No bank account is necessary for citizens to use Palau Stablecoin. This will facilitate greater financial inclusion for those who have been unable to open a bank account. With a stablecoin, money transfer can happen without the sender and the recipient being in the same physical location,” the Ministry of Finance said.

The stablecoin and the ongoing digital residency program form Palau’s core digital asset strategy.

In a Bloomberg interview last September, Whipps said, “At the core of our strategy and digital asset strategy, Palau is essentially a combination of initiatives really to grow the size of our visit digital participants to diversify our economy into FinTech and to attract talents from around the world, to form partnerships and to open our ecosystem to builders and entrepreneurs. We just hope to provide a platform where entrepreneurs can grow up and maybe that's our ultimate goal.”

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