XRP News Today: Palau's Stablecoin Pilot Fails Legal Checks, Future Uncertain

Palau's digital currency initiative has come under scrutiny following an audit of its pilot project. The Ministry of Finance partnered with Ripple to trial a US dollar-backed stablecoin, but key legal procedures were not followed. The stablecoin, built on the XRP Ledger, aimed to enhance Palau’s payment systems and financial access. However, further expansion now hinges on legislative action.

The Ministry of Finance signed an agreement with Ripple Services Inc. in December 2022 to launch the Palau Stablecoin Pilot Project. Backed by a $25,000 deposit from Ripple, the project tested a digital currency recorded on the XRP Ledger. The goal was to improve financial efficiency, cut costs, and reduce reliance on physical cash. Three local retailers and 154 government volunteers participated in the trial. Transactions involved redeeming stablecoins for goods, providing feedback on the system’s usability. According to the final audit report, Ripple’s contribution was deposited into Palau’s National Treasury and used under the national budget.

Despite operating within its general authority, the Ministry of Finance bypassed two critical legal checks. The report from the Office of the Public Auditor found that neither the Attorney General nor the National Director of Program, Budget, and Management had certified the agreements as required. The absence of the Attorney General’s legal review left the agreements vulnerable to legal risks. In addition, while the payments were certified during disbursement, the initial agreement lacked certification confirming available funds. These steps are mandated to protect public resources and ensure lawful execution of contracts.

Palau officials acknowledged the oversight, attributing it to reliance on internal legal staff from the Office of the President. The Ministry also pointed to the project’s grant nature, arguing that such agreements often do not require certification. However, the Auditor emphasized that government contracts must follow procurement laws regardless of funding source. No misuse of funds or procedural conflict by staff was reported. The pilot’s administration was found to have stayed within expected duties, with expenditures properly recorded.

With the pilot phase complete, decisions on future steps remain pending. The Auditor’s report made clear that establishing a circulating stablecoin would require formal legislation. Until then, any further rollout would exceed current legal boundaries. Palau’s move to modernize payments through blockchain-based tools shows promise. But legal compliance and oversight will determine whether its stablecoin vision can scale beyond pilot testing.