Digital Money in the Pacific: Opportunities and Challenges for Financial Inclusion

Policymakers in Pacific Island Countries (PICs) are exploring the digital money revolution to enhance payment systems, boost financial inclusion, and counteract the decline in correspondent banking relationships. These nations face unique challenges in financial services due to their dispersed, isolated nature, contributing to poverty and inequality. The loss of banking partners particularly impacts them due to their heavy reliance on remittances.
Many PICs lack a national currency, using foreign currencies instead, which limits their control over national payment systems. Financial inclusion varies significantly across the region, with some countries making strides through mobile-based financial products, while others lag behind, still dependent on cash transactions.
The International Monetary Fund (IMF) suggests that digital currencies, including stablecoins and central bank digital currencies (CBDCs), offer potential benefits for these countries, such as improved efficiency and accessibility of financial services. However, the transition to digital money comes with challenges, including the need for robust digital infrastructure, regulatory frameworks, and safeguards against financial crimes.
The adoption of digital money in PICs could significantly impact their financial systems and inclusion efforts. The IMF advises careful consideration of digital money options, taking into account each country’s specific circumstances, including the presence of a national currency and the maturity of their payment systems. A regional approach to digital currencies is also recommended to manage risks and leverage collective strengths.
This exploration of digital money is part of broader research and discussions aimed at understanding and supporting the financial development of Pacific Island Countries in an increasingly digital world.