Part 5 of 7: Financial Access and the Path to USDM1
Corporate Stablecoins
From the earliest stages of their adoption, the government took note of the evolution and rapid growth of stablecoins – digital instruments designed to maintain a one-to-one peg with fiat currencies like the U.S. dollar. The largest stablecoins were issued by private companies that held U.S. dollars and U.S.
Treasuries, alongside other assets, as reserves in traditional financial institutions. Many of these instruments sought to combine the stability of the U.S. dollar with the technical advantages of blockchain-based infrastructure. These advantages included low-cost distribution with reduced reliance on traditional banking rails as well as strong record-keeping integrity. Blockchain systems maintained assets and transaction histories under a unified, verifiable and immutable standard, enabling low-friction transfers and continuous auditability. From early 2019 to early 2025, stablecoin market capitalization grew from $1 billion to over $200 billion, demonstrating the ongoing viability of on-chain dollar-denominated assets and their potential to broaden access and expand domestic liquidity.
At the same time, the government noted structural limitations. Corporate stablecoins are not cash equivalents and remain corporate liabilities, often with uncertain legal protections for holders. Reserve composition and disclosure practices vary widely across issuers. As a result, in an issuer insolvency, holders may face lengthy bankruptcy proceedings, unclear claim priority and potential shortfalls in redemption proceeds.
For regulated financial institutions like banks, these and other characteristics create additional challenges. Under Basel III/IV standards, exposures to corporate stablecoins can attract high risk- weighted asset charges reflecting both corporate credit risk and operational risks associated with privately issued digital liabilities. Under prevailing accounting frameworks, corporate stablecoins are typically classified as intangible assets or inventory. Since they are not high-quality liquid assets (HQLA), are not recognized as eligible financial collateral and do not confer capital offsets, banks holding or warehousing stablecoins risk incurring incremental capital and funding costs that compound with use.
These limitations reduced the suitability of corporate stablecoins for use cases like UBI distribution. In regions like the Pacific – where correspondent-banking access is already fragile due to balance-sheet, liquidity and capital considerations – corporate stablecoins’ capital inefficiency and negative balance-sheet impact raised the risk of introducing additional points of friction rather than alleviating them.
While stablecoins demonstrated strong technological benefits, usability and potential for adoption, their corporate liability structure and regulatory treatment (among other issues) limited their applicability for use as a foundation for inclusive, sovereign-aligned financial infrastructure.
Tokenized Government Bonds
As the government spent more time evaluating options for regular ENRA disbursements, and understanding the opportunities and limitations of stablecoins, it coordinated with leading international advisors. These groups helped refine the government’s understanding of feasibility and policy alignment.
This assessment period coincided with global progress toward tokenized sovereign bonds, where blockchain was explored as a modern book-entry layer for traditional securities. In the early 2020s, several governments and official institutions piloted representations of sovereign bonds on distributed ledgers. These experiments demonstrated that blockchain could operate as a modernized registry or settlement rail when the bond remained a security issued through existing legal and custodial
infrastructure.
Examples included Hong Kong’s 2023 and 2024 tokenized government-bond issuances, which were classic sovereign notes mirrored on a blockchain while custody, settlement and investor protections continued to be governed by traditional law. Singapore’s Project Guardian and MAS pilots confirmed tokenized sovereign debt can satisfy prudential, operational and settlement-risk requirements when legal enforceability is anchored in standard trust-law and securities-law structures. The BIS Innovation Hub, World Bank and ADB reached similar conclusions, with a consistent finding that tokenization does not change the legal nature of the obligation.
For the RMI, these developments began to clarify a critical principle – a sovereign bond remains a sovereign bond even when its book-entry system operates on a distributed ledger – provided the instrument is governed by sovereign-debt law, that custody and collateral arrangements remain within the regulated financial system, that intermediaries remain supervised entities, and that the blockchain is intended to function as the delivery and record-keeping layer.
Tokenized Bank Deposits
In parallel, the government also observed work being done on tokenized bank deposits with commercial banks issuing tokenized representations of traditional deposits on permissioned ledgers. Central banks, including the Federal Reserve, MAS, ECB and Bank of England, noted that when the liability remains a bank deposit under existing banking law, tokenization modernizes transfer and record-keeping but does not create a new monetary instrument or change deposit insurance, risk weighting or supervisory treatment.
This also reinforced the government’s view that tokenization can preserve legal substance while enhancing operational characteristics. In both sovereign-debt and bank-deposit pilots, the underlying claim remained unchanged, settlement and custodial controls remained with regulated intermediaries, and blockchain functioned as the book-entry system.
As a broader principle, this reinforced tokenization is a technological upgrade not a financial innovation that alters risk, governance or legal substance. It enhanced confidence that a sovereign bond could be digitized without becoming crypto or a payment token.
Institutional Readiness
These insights encouraged the RMI government to explore directly issuing a fully collateralized sovereign debt instrument that could be used safely and securely in ENRA distributions, reduce liquidity pressures and cash constraints, and avoid the perception or risk of imposing higher costs on correspondent-banking partners.
The RMI discussed the program with domestic stakeholders and multilateral partners at various stages as its understanding, position and approach evolved.
Over a multi-year period, the RMI collaborated with leading international advisors, engaged and retained qualified experts, expanded supervisory capacity and regulatory bandwidth, and ensured approaches operated fully within AML/CFT requirements and the RMI’s prudential supervisory perimeter.
As the government prepared for phased pilots and citizen-education initiatives, it upgraded its digital literacy, IT infrastructure, technology governance, risk-management and compliance practices to maintain alignment with global standards. Cybersecurity measures were implemented consistent with international best practices, and institutional checks and balances were reinforced through the application of additional safeguards.
ENRA
The first distribution of ENRA – the RMI’s Universal Basic Income – occurred on November 26, 2025 and will continue every quarter thereafter for the next decade or more through both conventional and digital channels.
Blockchain Pilot
The RMI introduced its digital sovereign bond, USDM1, and its citizen UBI wallet, Lomalo, in a limited, phased rollout for qualified ENRA recipients alongside traditional distribution methods. This allowed the RMI to monitor operational performance. The RMI will expand access for future distributions.