Comprehensive Review of Palau’s Stablecoin Experiment: Insights and Conclusions
In a recent development, Palau’s Office of the Public Auditor (OPA) has unveiled the performance audit for the nation’s stablecoin pilot, which was conducted using the XRP Ledger. This audit, eagerly anticipated by industry observers, confirms that Ripple Services Inc. provided a single payment of $25,000 to fund the 25-month trial. Just over half of this grant has been utilized, providing a clear picture of the project’s financial framework. The 12-page report elucidates the financial details of the Palau Stablecoin (PSC) initiative, which spanned from October 26, 2021, to November 27, 2023.
Financial Insights: Ripple’s Funding of Palau’s Stablecoin Project
The audit details reveal that Ripple deposited $25,000 into the National Treasury on March 10, 2023. From this amount, the Ministry of Finance (MOF) allocated $14,035, primarily to reimburse three local merchants—Surangel & Sons, Penthouse Hotel, and King’s Minute Mart. These establishments accepted PSC tokens spent by 154 volunteer government employees, each provided with 100 PSC tokens, equivalent to the US dollar. The remaining balance of $10,965 is still held in the Treasury, pending a decision on a potential second phase.
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According to the OPA, Ripple’s grant was appropriately recorded under the fiscal year 2023 budget law (RPPL 11-24), dispelling earlier rumors that the funds bypassed official budgetary procedures. This investigation was initiated at the behest of Senator Mark Rudimch, whose committee questioned the program’s legality and financial protocols in July 2023. The audit aimed to determine if the MOF had the legal authority to collaborate with a private entity and if it adhered to Palauan law.
Audit Findings: Legal and Procedural Observations
The audit concluded that the MOF acted within its legal boundaries and did not overstep its mandate. However, two procedural issues were identified. First, neither the original memorandum of understanding from October 2021 nor the December 2022 Ripple Master Hosted Stablecoin Services Agreement was certified “for form and legality” by the Attorney General, as required by 40 PNC § 612. Additionally, when the services agreement was signed, the National Director of Program, Budget & Management did not certify fund availability, a requirement under 40 PNC § 401(b).
The OPA emphasized the need for all government contracts to receive Attorney General certification before execution, urging the MOF to adhere to this protocol. The Ministry acknowledged this recommendation, highlighting that some agreements do not necessitate AG review and that it has relied on legal advice from the President’s legal team. The Ministry also noted that while the initial budget certification was omitted, subsequent disbursements were certified, arguing that the grant fell under existing annual assistance provisions. The MOF accepted the audit findings and expressed gratitude for the recommendations.
Looking Forward: The Future of Palau’s XRP Ledger Pilot
Beyond addressing procedural shortcomings, the OPA provided a nuanced evaluation of the pilot’s policy implications. The report praised the pilot for testing technological solutions that enabled the Ministry of Finance to manage the minting, distribution, redemption, and destruction of PSC, with all transactions recorded on the public XRP Ledger. The potential advantages for financial inclusion and reduced transaction costs were also highlighted. However, the report cautioned that launching a national stablecoin would necessitate explicit legislation by the Olbiil Era Kelulau (Palau’s Congress), without which expansion would be deemed unlawful.
For Ripple, the audit concludes a three-year involvement with a relatively modest financial commitment of $25,000, a figure that stands out against typical central bank digital currency pilots. While the report does not assess the technical performance in detail, it confirms the XRP Ledger’s capability to handle mint-and-burn operations and retailer redemptions. Palauan policymakers now face a critical decision: whether to draft legislation to transform PSC from a proof-of-concept into a recognized legal tender or to leave the remaining funds unspent, shelving the project.
As of the latest available data, XRP is trading at $2.1696.
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