Government Issued Stablecoin – Palau Stablecoin (PSC)


The primary objective of the PSC Pilot Project was to assess different use cases and proposed benefits brought by the PSC, in a controlled environment and during a determined period, where up to 200 volunteers from among the Palau government’s executive branch employees would making purchases at a select number of retailers onboarded in this project.

Upon successful testing of the PSC solution design, the long-term objective was to promote the use of the PSC at a national level and make it a convenient and cost-effective way of payment, giving people innovative and secure ways to access & transact with their money without physically going to a bank, handling fiat cash, or paying higher fees associated with credit cards & other electronic payment systems.

The project evaluated the stablecoin’s viability through various feedback and lessons learned gathered from the various volunteers. The project assessed the benefits and challenges encountered, with a view to bringing forward the recommendations for a national deployment of the PSC in the Republic of Palau through a determined scope and continued phased approach.

The report will first summarizes the PSC pilot project structure and timeline and present the overall survey statistics and results with the volunteer’s feedback. Finally, the project tested the technology and verified the benefits which the stablecoin is expected to bring in the Palau payment and economy, while highlighting the various legal, socioeconomic and policy considerations the Palau government should prioritize during such deployment.

What is the Purpose of the PSC project?

The Republic of Palau, an independent, sovereign nation of islands which uses the United States Dollar as its form of currency, will conduct a research and development pilot project to manage minting, distribution, redemption, and destruction of digital currency for Palau (“Palau Stablecoin Project” or “Project”).

To accomplish this, Palau partnered with Ripple, a crypto solutions blockchain company, which develops, supports, and provides hosted software services (“Hosted Services”) based on its proprietary software (“Software”) and related off-site and on-site professional services (“Professional Services”) to manage minting, distribution, redemption, and destruction of digital currency recorded on the public XRP Ledger resource. Palau and Ripple have previously entered into a Memorandum of Understanding dated October 26, 2021, establishing a collaborative partnership to explore the technology, use cases, and potential solutions and benefits associated with digital payments and creating a digital currency backed by the US Dollar for Palau (interchangeably “Palau Stablecoin” or “PSC”).

The Republic of Palau Ministry of Finance (“MOF”) launched a pilot program to explore and implement, in a secure and controlled live environment, technological solutions enabling the MOF to manage minting, distribution, redemption and destruction of PSC digital currency recorded on the public XRP Ledger resource.

The Pilot Program was designed to help:

  • establish a scheme for PSC collateralization that is approvable by commercial banks and their regulators;
  • determine a reusable accounting structure and integration plan for interacting between the XRP Ledger and the Palau’s core systems;
  • provide feedback to the Ripple software development team on key features needed to support the issuance and distribution of a PSC for broad use beyond the Pilot;
  • better determine the needs of end users of the PSC to optimize its use case beyond the Pilot;
  • evaluate the viability of a use case and present findings to Palau’s stakeholders, namely financial regulatory bodies, and the Palau National Congress, understanding that such stakeholder engagement and implementing legislation are conditions precedent to the mobilization and issuance of a Palau Stablecoin.

Minting, distribution, redemption, and destruction of the PSC requires opening and maintaining collateral bank account for the purpose of holding the US Dollars in an equal amount to the PSC in distribution.

The Process for the PSC

The PSC Phase 1 scope was designed to enable a selection of up to 200 employee volunteers from the executive branch of the government to use the PSC to make purchases from at least three (3) voluntarily participating local retailers. PSC was issued on the XRP Ledger (XRPL) by the MOF and fully collateralized with USD cash deposits held in reserve at a Tier 1 Federal Deposit Insurance Corporation (FDIC) United States bank.

This “closed loop” pilot allowed the MOF to stay in control of the PSC issuance and distribution, with a maximum money in circulation equivalent to USD20,000 (= PSC 20,000). These funds were directly distributed by the MOF with no possibility for any volunteers to “pay-in” to obtain additional digital currency. Nor was it possible for any other non-selected user to get hold of PSC. Moreover, all selected volunteers could only make payments and only the participating local retailers were able to convert PSC to USD deposits in the commercial bank accounts.

All volunteers and retailers volunteering to participate in the pilot signed a legal agreement with the MOF to use the PSC under the agreed conditions and to allow the MOF to monitor the transactions and collect any data available for analysis and statistical purposes.

The creation of the wallet address to receive and transact with PSC was done using the wallet app. Early feedback led to establishing a one-time, single-use access code to restrict creation of a single wallet by authorized individuals, only. Once created, those wallets were then registered in the CBDC Platform (i.e. the PSC issuer & distribution system) with both user registration and PSC distribution managed by the MOF staff.

A detailed solution design captured the overall process, key volunteers, and the PSC pilot lifecycle aligned amongst the pilot project volunteers. The below diagram summarizes the overall workflow:

Benefits & Outcomes
  1. Enhanced Security: Blockchain’s decentralized and immutable nature makes it highly secure against fraud and cyber-attacks.
  2. Transparency and Traceability: Every transaction on the blockchain is recorded and easily traceable, promoting transparency and reducing the possibility of financial malpractices.
  3. Reduced Transaction Costs: Blockchain can streamline payment processes, potentially reducing fees associated with traditional banking and financial intermediaries.
  4. Faster Transactions: Blockchain enables quicker transaction processing compared to conventional banking systems, especially for cross-border payments.
  5. Financial Inclusion: It could provide access to financial services for unbanked or underbanked populations in Palau, fostering greater economic participation.
  6. Environmental Benefits: Palau’s emphasis on environmental sustainability might align with certain blockchain models that are energy-efficient.
  7. Stable Value: Being a stablecoin, it’s designed to minimize the volatility often associated with cryptocurrencies, making it more suitable for everyday transactions.
  8. Regulatory Compliance: Customizing blockchain to comply with Palau’s regulatory framework can ensure legal and financial integrity.
  9. Tourism Enhancement: As a tourist destination, Palau could benefit from an easily accessible digital currency for international visitors.
  10. Economic Growth: This initiative could stimulate economic growth by attracting tech-savvy businesses and investors interested in blockchain technology

Success metrics for the project:

  1. In collaboration with Ripple Inc., this pilot project was designed to evaluate the Palau Stablecoin as a viable, secure, and innovative payment solution.
  2. Underscore Palau’s commitment to embracing technological advancements and strengthening economic resilience.
  3. Document the project, survey outcomes, and key insights for the ongoing development of the PSC and its possible implementation on a national scale.
  4. Demonstrate the accomplishments and potential of the PSC Pilot Project and also provide an overview of the challenges faced and the valuable lessons learned throughout the project phase.
Further Info

“The pilot program assessed the viability and user-friendliness of digital currency for local transactions and payments. With the stablecoin now live, Palauan residents can now use their mobile devices to buy goods from participating stores or engage in local transactions using the currency. This innovative method is faster, more cost-effective, and offers enhanced security compared to traditional approaches.

The project emerged through a strategic collaboration between Palau and Ripple, with Ripple offering comprehensive assistance in multiple domains, including business, policy, and design. Additionally, the Silicon Valley company provided Palau with technical support, enabling the development of the stablecoin on the XRP Ledger infrastructure.

While the value report states that the stablecoin runs on a private version of the XRPL, Antony Welfare, Ripple’s CBDC Strategic Advisor, clarified that the stablecoin is, in reality, built on the public XRP Ledger. Welfare acknowledged an error in the report and assured that the team is actively rectifying the mistake.”


The project was completed in November 2023 as the Pilot with Phase 2 planned for 2024

This Use Case was submitted to CBRC in December 2023 and Verified by Antony

The CBRC Score of 92 has been awarded: “A nations Digital Currency is the lifeblood of the Country – used every second by citizens, government and businesses to make and receive payments. Having one immutable register of the Currency flow must be certain and clear for all users of the currency. The Palau Stablecoin is a US Dollar Digital Currency used to help make payments in and around the 140 island that make up Palau”

To Verify the Project on Blockchain Scan the QR code:

and to verify live on Ledger: Click Here

A more detailed understanding of the CBRC Score is available on Request


© Antony Welfare 2024