Marshall Islands Experiment With Crypto-Based Universal Basic Income as Cash and Banks Struggle to Deliver
Access to basic financial services in the Republic of the Marshall Islands (RMI) is undergoing a quiet but profound shift. Facing chronic issues with cash distribution and limited banking infrastructure, the Pacific island nation has begun experimenting with digital assets as a tool to deliver universal basic income (UBI) to its citizens.
At the end of last month, residents enrolled in ENRA, the RMI’s universal basic income program, received their payouts in two different ways. Some collected traditional paper checks. Others opened their phones and discovered a new digital asset in their wallets: a token called USDM1, credited through Lomalo, a “digital citizen wallet” built on the Stellar blockchain by enterprise-focused platform Crossmint.
A New Kind of Government-Backed Token
USDM1 is not a typical crypto token or standard stablecoin. According to Paul Wong, director of special projects at the Stellar Development Fund (SDF), the asset is structured as a fully collateralized sovereign bond. In practice, that means:
– It is backed by government-issued debt, rather than private reserves.
– It is designed to generate yield over time.
– It is intended to function as a medium of exchange for everyday use across the Marshall Islands.
For a country of around 40,000 people spread across remote atolls, this structure aims to combine the security of government debt with the efficiency and programmability of blockchain-based money.
Unlike many dollar-pegged stablecoins held in bank accounts or money market instruments managed by private issuers, USDM1 is explicitly tied to the financial framework of the Marshallese state. The token is meant to represent a claim on a fully collateralized government obligation while still behaving like a spendable, digital version of cash.
Why the Marshall Islands Are Turning to Digital Assets
The RMI faces a set of constraints that make it an ideal testing ground for crypto-based public finance:
– Geographic fragmentation: The population is scattered across dozens of islands, making cash distribution slow, expensive, and unreliable.
– Limited banking access: Not all citizens have access to traditional bank accounts, branches, or ATMs. Even basic financial services can require long travel times.
– Costly intermediaries: International transfers and local remittances often involve high fees and multiple intermediaries, eating into small incomes.
– Dependency on foreign infrastructure: The country’s monetary and financial systems are closely tied to external banks and partners, which can be fragile or politically exposed.
By issuing UBI directly into a digital wallet, the government can skip physical distribution channels, reduce administrative overhead, and potentially extend financial access to people who have never been fully integrated into the banking system.
Lomalo: A “Digital Citizen Wallet”
Central to the experiment is Lomalo, the Stellar-based application that serves as a digital identity and payments interface for citizens. Developed with support from Crossmint, Lomalo functions as:
– A wallet to receive and hold USDM1.
– A tool for sending and receiving payments within the local economy.
– A potential gateway to other digital assets and financial services built on Stellar.
For the average Marshallese participant, Lomalo turns a smartphone into a bank branch, a payment terminal, and a savings account. People who previously depended on physical checks or informal arrangements can now receive funds instantly, see their balance in real time, and transact without needing to visit a bank.
Beyond Stablecoins: Why Structure It as a Sovereign Bond?
The decision to structure USDM1 as a fully collateralized sovereign bond rather than a classic stablecoin is more than a legal nuance. It reflects a strategic attempt to align the digital asset with the country’s broader fiscal and monetary framework.
Key implications include:
– Yield generation: Because the token is backed by interest-bearing sovereign bonds, it can potentially accrue value or support yield-sharing mechanisms. That opens the door to UBI that does not rely solely on tax revenue or external grants.
– Regulatory clarity: Framing USDM1 as a sovereign instrument gives the government more direct control over issuance, redemption, and monetary policy, as opposed to delegating these functions to a private company.
– Trust and legitimacy: Citizens may be more willing to treat USDM1 as “real money” if it is explicitly rooted in the state’s balance sheet rather than in opaque corporate reserves.
This structure also allows the RMI to explore how digital government debt could circulate within the real economy, rather than remaining confined to financial markets and institutional investors.
Universal Basic Income in a Digital Format
ENRA, the Marshall Islands’ universal basic income program, is part social policy and part economic experiment. The core idea remains simple: every eligible citizen receives a regular payment from the state, no strings attached. But delivering that payment in digital form creates several new possibilities:
– Instant distribution: Funds can be credited to wallets in seconds across all islands, without shipping cash or printing checks.
– Lower leakage and fraud: Digital transactions leave an auditable trail, potentially reducing misallocation, theft, or duplicate claims.
– Programmability: In the future, smart contracts could automate eligibility checks, payment schedules, or conditional supplements (for example, temporary boosts during disasters).
– Integration with other services: The same wallet infrastructure could be used for subsidies, tax refunds, microloans, or health and education incentives.
For policymakers, crypto-enabled UBI is not just about replacing checks with tokens; it is about building a more flexible, responsive social safety net that can operate at low cost and high speed.
Financial Inclusion for the Unbanked and Underbanked
A significant portion of the Marshallese population has historically been excluded from traditional banking. Distance, paperwork, minimum balance requirements, and a limited commercial banking presence all contribute to low adoption.
By contrast, a digital wallet can be activated with minimal friction and used from any island with basic connectivity. For many citizens, this may be their first experience with:
– A persistent digital balance they can check at any time.
– The ability to send and receive payments beyond their immediate community.
– A tool that behaves like both a current account and a basic savings vehicle.
For merchants, accepting USDM1 means they can participate in a wider, more transparent economy without the costs of card terminals or the risks of holding large amounts of cash.
Comparing Crypto UBI With Central Bank Digital Currencies (CBDCs)
The Marshall Islands’ experiment sits at the intersection of several global trends, including the rise of central bank digital currencies. Although USDM1 is not a CBDC in the strict sense, it is close enough in design and function that it invites comparison:
– Similarities: Both involve government-linked digital money, aim to improve payment efficiency, and can support financial inclusion.
– Differences: USDM1 is explicitly structured as a sovereign bond on a public blockchain, whereas many CBDCs are being designed on permissioned, central bank-run infrastructures.
This hybrid approach allows the RMI to tap into existing blockchain networks and developer ecosystems while retaining sovereign control. It also creates a potential blueprint for other small states that lack the resources to build a CBDC from scratch but still want the benefits of digital public money.
Challenges and Open Questions
Despite the promise, the initiative faces real obstacles:
– Connectivity and infrastructure: Reliable internet and smartphone access are not yet universal. Without them, digital wallets cannot fully replace cash.
– Digital literacy: Some citizens may need training to use wallets securely, manage private keys or credentials, and avoid scams.
– Price and policy stability: The long-term value and behavior of USDM1 will depend on sound fiscal management and clear rules for issuance and redemption.
– Merchant adoption: For the token to function as money rather than just a digital allowance, shops, service providers, and employers must be willing to accept and use it.
The Marshall Islands must also navigate international regulatory expectations around anti–money laundering, consumer protection, and cross-border payments, all while ensuring that the experiment does not introduce new vulnerabilities into its financial system.
What Success Could Look Like
If the pilot proves sustainable and scalable, several outcomes could follow:
– Reduced reliance on physical cash: Less need for expensive logistics, fewer shortages, and greater resilience in emergencies.
– A more cohesive national economy: Digital rails can connect distant atolls into a single, integrated market.
– New financial products: On-chain sovereign bonds could support micro-savings, community investment funds, or diaspora remittances tied directly to public finance.
– A template for other nations: Island states, emerging economies, and countries with large unbanked populations could adapt the model to their own UBI or social transfer programs.
In this scenario, USDM1 and Lomalo would not just be tools for distributing welfare—they would be the backbone of a new, digitally native public financial infrastructure.
Broader Implications for Crypto’s Real-World Use
The Marshall Islands project speaks to a broader debate in the crypto industry: can digital assets move beyond speculation to deliver tangible social benefits?
By embedding UBI into a tokenized sovereign bond system, the RMI is testing several claims at once:
– That blockchain can lower the cost of delivering public services.
– That programmable money can make social policies more adaptive and transparent.
– That citizens can trust and use state-linked digital assets for everyday life.
If these claims hold, the experiment could mark an important turning point in the narrative around crypto—away from trading charts and toward practical, citizen-centered applications.
The Road Ahead
The Marshall Islands remain at an early stage of this journey. The recent UBI distribution via USDM1 and Lomalo is a pilot, not yet a wholesale transformation of the country’s financial system. Policymakers, technologists, and citizens will be watching closely to see:
– How smoothly payments flow.
– How easily users adapt to the new tools.
– How resilient the system is to outages, policy changes, or external shocks.
The stakes are high: for a small, remote nation, getting digital finance right could mean better access to income, services, and opportunity for tens of thousands of people. And for the rest of the world, the Marshall Islands may offer a rare live demonstration of what happens when a government uses crypto not as a speculative asset, but as a foundational layer for universal basic income and everyday money.