Financial System of the Republic of the Marshall Islands

The Republic of the Marshall Islands (RMI) has a relatively well-developed financial system, with a small but stable banking sector. In this article, we will explore the country’s financial landscape, including its banking sector, challenges related to correspondent banking relationships (CBRs), and efforts to improve its anti-money laundering and combating the financing of terrorism framework.

Overview of the Financial System

The RMI’s financial system is heavily dependent on the US dollar as legal tender. The country has two commercial banks, one pension fund, one development bank, and two insurance companies operating in the country. As of 2017, the banking sector had total assets of around $261 million.

Banking Sector Performance

According to the International Monetary Fund (IMF), the RMI’s banking sector is characterized by a small but stable banking system. In 2016 and 2017, the commercial banks’ assets grew by about 19%, while deposits increased by 20% over the same period. This indicates a positive trend in the country’s financial sector.

Challenges Related to Correspondent Banking Relationships (CBRs)

However, the RMI faces challenges related to CBRs, which are essential for facilitating international payments and economic transactions. In 2015, the First Hawaiian Bank, the RMI’s only domestic commercial bank, notified the government that it was considering terminating its CBR due to concerns about anti-terrorism financial rules in the US.

Addressing CBR Challenges

To address this issue, the RMI has taken steps to improve its anti-money laundering and combating the financing of terrorism framework. The government has drafted new legislation consistent with global standards and consulted external experts and US authorities to maintain financial links.

Recommendations from the IMF

The IMF has also recommended that the RMI’s Banking Commission include the Money and Banking Division (MIDB) in its oversight to ensure and safeguard the stability of the country’s finance sector. This recommendation aims to strengthen the regulatory framework and enhance the overall stability of the financial system.

Sources

• Asian Development Bank. 2019. Pacific Finance Sector Brief: Marshall Islands.
• International Monetary Fund. 2016. Republic of the Marshall Islands: 2016 Article IV consultation.
• International Monetary Fund. 2018. Republic of the Marshall Islands: 2018 Article IV consultation.
• Johnson, G. 2016. BOMI to lose US bank link. The Marshall Islands Journal.

Note: The references provided are a selection of sources used in the Finance Sector Brief and may not be exhaustive.