David Paul looked nervous. He rested his hand over his mouth, fidgeted with his wedding ring, sometimes smiled and sometimes grimaced as the legislature for the Republic of the Marshall Islands debated a motion to oust his boss, President Hilda Heine, from power.
Paul, a top government minister, wore a purple tie and a ribbon on his pocket—the colour signaling support for Heine. The tie and dark suit also marked the importance of the occasion in a country where shorts and Hawaiian shirts are standard business attire. One of Heine’s opponents the previous week called for a vote of no confidence. Among the complaints: The president had supported a plan to create the first legal tender cryptocurrency in the world—a digital token called the SOV, for “sovereign.”
If the vote of no confidence passed, most Marshallese expected the opposing senators to repeal the cryptocurrency law. “I knew it was close,” Paul says. “I knew going in it was close.” With one member absent in the 33-member Nitijela, Heine got exactly half the vote, with a tie going to the incumbent. She had eked out a victory. Paul says he never really doubted the outcome.
He might have had reason to worry. The Marshall Islands crypto project, which was largely Paul’s baby, seemed like a good idea until the international finance community responded by threatening to cut off the tiny Pacific island nation from the global banking system. When the Nitijela passed the law authorising the SOV in February, a Bitcoin was trading for more than $10,000, and someone had just spent 10 times as much for a virtual pet kitten based on crypto technology. But by the time of the no-confidence vote, in mid-November, Bitcoin was worth $6,000, and all kinds of crypto assets were hurting.
The Marshalls’ experience in the boom and bust throws into relief problems the country faced long before it tried to go crypto: increased isolation from the financial world as bank after bank fled the islands and a desperate need for cash. But some Marshallese worry the SOV brings new problems with an uncertain payoff. “There should have been more due diligence,” says Senator Bruce Bilimon, who abstained from the vote to create the currency but was in favour of the vote of no confidence. For the company that helped pull the Marshall Islands into the plan, he says, “it’s good it’s taking risks. But is it worth taking risks for a country?”
Paul had just joined President Heine’s cabinet when he was asked in January to speak with two entrepreneurs who’d travelled more than 8,000 miles from Tel Aviv to meet with members of the government. He was a first-term senator from Kwajalein Atoll, where the U.S. has a missile defense facility, and Heine had appointed him “minister-in-assistance,” a broadly defined position that effectively made Paul her right-hand man. She asked him to hear the entrepreneurs’ pitch.
Paul says he’d never owned Bitcoin but followed it for years, and he seized on the project immediately. At the meeting he met Barak Ben-Ezer, then 39. Ben-Ezer was the founder of Neema, a company that uses digital currencies to provide financial services to unbanked populations in developing countries. He wanted the Marshall Islands to let Neema embark on an even more ambitious project.
Paul and the other Marshallese had never heard of Neema, but they said they ran a background check later. Ben-Ezer had studied computer science and economics at Columbia University. Neema had received seed funding from Y Combinator, a Silicon Valley incubator whose success stories included Airbnb Inc. and Dropbox Inc.
Paul thought the project could burnish the country’s reputation. “You always remember who was the first to step on the moon—that was Neil Armstrong,” he says. Likewise, the SOV could be remembered as the first national digital currency ever launched. But beyond Paul’s dream of making an international mark, Ben-Ezer’s idea had some specific practical appeal.
Formed by volcanoes that later sank back into the ocean, the Marshall Islands are thin slivers of land wrapped around shallow lagoons. The country, which became independent from the U.S. in 1986, has a population of about 53,000 spread over 24 inhabited atolls with a combined 70 square miles of land. That’s about the same as Washington, D.C.—if you cut that city’s population by 90 percent, broke it into pieces, and spread it over a swath of ocean larger than Alaska.