Palau is in the pilot phase. The government in Palau is currently working on a quasi-CBDC pilot with the company Ripple. In a somewhat unique design, the CBDC is being designed as a government-provided stablecoin backed by the U.S. dollar. While this design is not a standard CBDC, it does present many of the same risks because it is the government that has ultimate control over the use and design of the stablecoin.

CBDC History and Development

In 2021, Ripple announced that it had partnered with the Republic of Palau to “explore the country’s first national digital currency and its use cases with the XRP Ledger (XRPL).” Ripple went on to explain that the initial focus would be on “cross-border payments and a USD-backed digital currency for Palau.”

In 2022, the Ministry of Finance established a design strategy and planned to launch the pilot by December 2022. However, that plan was ultimately delayed to prepare communication strategies and onboard volunteers.

In 2023, Ripple announced that Palau would be launching a three-month pilot to test a government-provided stablecoin backed by the U.S. dollar and operated on the XRP ledger. President Surangel S. Whipps Jr. said, “By digitising our currency, we hope to mobilise our economy and government processes to improve financial transactions and empower our citizens.” The pilot was open to 200 government employees and conducted under the supervision of the Ministry of Finance. The Ministry distributed $20,000 to the volunteers to make payments at three participating retailers. An example of onboarding instructions can be found here.

Palau Ministry of Finance member Jay Hunter Anson provided a series of updates on social media throughout the pilot. On July 19, 2023, Anson reported that payments could be made through a web app and Android wallets (the iPhone wallet was still being developed). On September 7, 2023, Anson announced the government-provided stablecoin would be frozen so that a full review of its use could be conducted. On December 15, 2023, Anson shared that the Palau Ministry of Finance had officially launched the second phase of its pilot program to focus on “expanding accessibility and user participation with an emphasis on legal and regulatory compliance.”

Human Rights and Civil Liberties Concerns

According to Freedom House and other reports, Palau ranks highly across nearly all metrics. Some concerns are present, but those reported do not directly relate to the use or issuance of a CBDC. Even then, however, it’s important to recognize that the creation of a CBDC could open the door to risks to financial privacy and financial freedom.

For additional information on concerns regarding violations of human rights and civil liberties, see the following reports by Amnesty International, Financial Tyranny Index, Freedom House, Human Rights Watch, Privacy International, and the U.S. Department of State. For additional information on concerns regarding the risks of CBDCs, see the following webpage and report by the Cato Institute: The Risks of CBDCs and Central Bank Digital Currency: Assessing the Risks and Dispelling the Myths.

For additional information regarding metrics, the methodology page explains each of the data points and provides their respective sources.