The Republic of the Marshall Islands (RMI) is a step closer to establishing a new banking regulatory system with Griffith University academics playing a key part in the move towards a Monetary Authority for the North Pacific Island nation.
In issuing a White Paper for the establishment of a Monetary Authority in the country, Hon. David Paul, RMI’s Minister for Finance, Banking and Postal Services, said that:
“Government intervention in the form of Marshall Island’s Monetary Authority was needed to respond to the increasing vulnerability of RMI’s financial system”.
The basis essentially of the White Paper is a policy paper drafted jointly by RMI’s Office of Banking Commission (OBC) and Griffith’s Pacific Island Centre for Development Policy and Research (PICDPR), soon after OBC signed an MoU in 2022 with PICDRP for assistance with research and policymaking capacity development, which PICDPR provides to several institutions in the region.
A key recommendation of the policy paper had been the establishment of a monetary authority to replace the current centralised system headed by the existing OBC. The bill for the establishment of RMI’s Monetary Authority is scheduled to be presented to RMI’s Government in the coming days and is likely to be passed.
Program Director of the PICDPR, Dr Parmendra Sharma says the policy paper found the major benefits of a monetary authority will be around RMI’s ability to effectively respond to the threats surrounding the continued viability of the nation’s commercial banks and the flow-on effects to payments and the Islands’ financial and economic development. Dr Sharma said:
“Without a central banking authority, the Marshall Islands current banking sector isn’t able to operate effectively and be at risk of governance infractions. An authority will provide a myriad of opportunities through fintech innovations and non-bank finance.”
Head of the OBC, Commissioner Sultan Korean says replacing the current regulatory authority has been in the pipeline for many years as banking sector problems confronting RMI had worsened since 2015, stating that:
“Griffith’s expertise laid a solid foundation for the White Paper and establishment of an internationally credible RMI Monetary Authority.”
Commissioner Korean is also heading the taskforce responsible for the establishment of the Monetary Authority. Members of the Taskforce include Griffith Asia Institute’s Dr Peter Dirou, an adjunct Research Fellow with PICDPR.
Dr Sharma said the policy paper elaborates on the responsibilities of an RMI Monetary Authority, the institutional framework that will be needed, and the pathway to building the Monetary Authority’s capabilities.
“Integrating the establishment of an RMI Monetary Authority, and an associated financial sector development plan, into the Compact renegotiations, highlights the importance of RMI maintaining its links with the US Federal Reserve System and US financial sector regulators.”
The Compact of Free Association is a treaty between the USA and the Marshall Islands which sees the US provide direct economic assistance to the Micronesian country.
The policy paper argues that an RMI Monetary Authority could develop along a similar trajectory as Banco Central de Timor-Leste (BCTL), which is seen as a highly credible institution with operational autonomy and using USD as the legal tender
Overall, this policy paper is an important step towards establishing a monetary authority in the RMI and addressing the financial sector problems confronting the state.
Griffith University is proud to have contributed to this policy paper and hopes it will assist the RMI Government in its efforts to resolve these problems. PICDPR will continue to help develop research and policymaking capacity at RMI’s Banking Commission and later at the Monetary Authority.
