The Ministry of Finance of the Republic of Palau has announced the successful completion of Phase 2a of the National Government Payment Service Project, which focuses on the integration of a stablecoin system powered by Ripple’s blockchain technology. The initiative, called the Palau Stablecoin Program, aims to develop a national payments ecosystem that is both convenient and cost-effective, and specifically tailored to the needs of Palau’s unbanked and underbanked population.

Ripple-based Palau Stablecoin is a success

During Phase 2a, which concluded on June 30, 2024, the collaboration with Ripple involved leveraging its Central Bank Digital Currencies (CBDCs) and blockchain platform to explore integrating a tokenized USD into Palau’s financial infrastructure. This digital innovation is intended to mimic successful models like PayPal and Alipay, but with enhancements specific to Palau’s unique socio-economic circumstances.

“In collaboration with Ripple’s Central Bank Digital Currencies and Central Bank Engagements team, the project leveraged Ripple’s Blockchain Technology to explore the feasibility of integrating a tokenized USD into Palau’s infrastructure,” the report adds.

It highlights the project’s crucial achievements in creating a regulatory and technological framework that can support the stablecoin. A key part of this phase was the near-completion of the Payment Service Bill, which aims to create a comprehensive legal framework that will govern the operation of the payment service. This law addresses crucial aspects such as licensing payment providers, establishing dispute resolution mechanisms, and enforcing anti-money laundering (AML) and know-your-customer (KYC) regulations.

The technical infrastructure assessment confirmed the feasibility of supporting the stablecoin system, with planned upgrades to internet connectivity and compatibility improvements on various digital devices across the archipelago. This infrastructure is crucial to ensuring that all Palauans have access to the new digital payment service, thereby promoting greater financial inclusion.

Ripple played a key role in the strategic planning and implementation of the pilot program. Phase 2a was crucial for “the exploration of the Palau National Payment Service with a series of discussions between the MOF and Ripple focused on revalidating previously identified use cases, along with key stakeholders identified as required to be part of the project ecosystem,” the report said.

What now?

The project’s progression to Phase 2b is focused on continuing the development of the ecosystem, with a specific focus on integrating more comprehensive financial, legal and business frameworks. This phase will also address the scalability of the payment system and ensure its robustness against potential security threats.

The Ministry of Finance has expressed a strong commitment to the continued improvement and growth of the ecosystem, stating that “further integration of financial institutions, regulators, legal frameworks, participating companies and use cases is vital as we move towards full national implementation.”

At the time of writing, XRP was trading at $0.6086.

Main image from Times Tabloid, chart from TradingView.com