There is a wonderful experiment regarding digital currencies backed by central banks that will provide other central bankers with tremendous data.

The Republic of the Marshall Islands plans to release its sovereign (SOV) digital currency, which will be legal tender for the mid-Pacific nation along with the US dollar that the country has used as its currency since its independence.

Unlike other nations that already issued digital currencies, such as Venezuela and its moribund petro, the environment in the Marshall Islands reflect an almost perfect laboratory experiment.

The scope of the experiment is relatively small since the country’s $212 million GDP in 2018 ranked 193rd out of 196 nations and which is roughly one-one-thousandth of bitcoin’s current market cap.

The mid-Pacific nation intends a phased release of 24 million coins of which  the independent and not-for-profit SOV Development Fund will receive 30 percent of the coins for the support of the SOV’s infrastructure.

The biggest question remains likely what will they be worth when launched. If the Marshall Islands go the route of a pure commodity currency, the value will be left up to the speculators.

It’s doubtful that it would be as high as bitcoin but likely to be higher than the petro as long as the Marshall Islands decide not to peg its value to a larger currency or a basket of currencies and turn the digital currency into  stable coins.

No matter how successful the sovereign is domestically or abroad, its performance will give other central banks reams of data regarding the behavior and performance of dual-currency regimes.

The largest economies in the G7 or the G20 could never act as quickly as the Marshall Islands have in developing and preparing the deployment of a digital currency backed by a central bank. Their economies are too large and the creation of unintended economic shockwaves are too great.

Just as the Italian city states led to the development of capitalism in the 16th Century and the invention of the joint-stock company by the Dutch in the 17th Century, innovation belongs to the small and nimble economies.