Current Economic Situation in Tuvalu
Source: freepik.com
Tuvalu is a collection of nine coral islands that form a country, which lies midway between Australia and Hawaii in the west-central Pacific Ocean. ‘Coral’ are organic materials from animal and plant remains. These together with volcanic rock, and lowland are the major composition of this island country.
Due to this, the soil is porous, making agriculture limited. The Tuvaluan economy relies on fishing, foreign aid, tourism, remittances from citizens working abroad (especially in Australia), and small-scale farming. It is also notable that Tuvalu owns the ".tv" top-level domain extension and, as such, is a key revenue generator.
The largest of its archipelagos (group of islands) is called Funafuti Atoll, which is where the capital is located. Tuvalu's population is the second-smallest country in Oceania after Nauru and the fourth-smallest in the world. It is home to about 11,000 people. The capital accounts for 60% of this population.
The Asian Development Outlook shows a continuous decline in the GDP annual growth rate of the Tuvaluan economy since 2023.
Source: adb.org
In 2023, the GDP growth rate stood at 3.9%, with a projection of a reduction to 3.5% in 2024. The decline is forecasted to continue even more to 2.4% by 2025.
Despite this decline, Tuvalu is still among the best economies in the region in terms of GDP growth rate, aside only Cook Islands, Samoa, Palau, and Kiribati, whose economies range between 5.8% and 15.0%.
Source: adb.org
In terms of inflation, Tuvalu currently holds the smallest record of 2.5% in the region, leading countries such as Fiji and the Marshall Islands, whose inflation rates go as high as 5.9% and 5.8%, respectively.
Source: adb.org
Over the years, Tuvalu has experienced the adverse effects of climate change. One major effect is that the highest point in this archipelago is 4.6 meters (15 feet) high due to rising sea levels and temperatures. There are projections that in 50-100 years, Tuvalu would be no more, as it would have been 'swallowed’ by the ocean.
In testament to this, the government has this to say:
“It is possible that, in 50 years’ time, Tuvalu will still be there,” says Karlos Lee Moresi, Tuvalu’s former secretary of finance. “But in 100 years’ time, it will be underwater. That is the best-case scenario.”
Could crypto save the Tuvaluan people while improving its economy?
Well, with blockchain technology, which is the foundation of the cryptocurrencies, the Tuvalu people could leverage a paperless economy, carbon credit tracking, decentralized fundraising, climate data management, a digital land registry, and other amazing features of this emerging technology, which helps to slow down the effects of climate change.
We will explore these further.
Crypto Law in Tuvalu
There are no specific regulations governing crypto in Tuvalu. Cryptocurrencies are legal to hold, mine, or trade.
Source: bamandgadsolicitors.com
Current State of Crypto Adoption in Tuvalu
There is no publicly available data on the current state of cryptocurrencies in Tuvalu, but the digital footprint of blockchain technology is clearly evident.
Alt text: An image indicating no public records of cryptocurrency ownership in Tuvalu
Source: triple-a.io
Tuvalu is working towards having the world’s first blockchain citizens by creating a national digital ledger. This public ledger is expected to contain the identities, citizenship, and financial data of all its citizens.
The journey towards this began in December 2020, when the government announced a massive digital migration project, integrating its governance and financial systems with the BSV public ledger, aiming to become the world’s first paperless society.
Tuvalu is collaborating with blockchain technology company nChain, blockchain consultancy company Elas Digital, and a community-tech consultancy, Faiā on this project.
An amazing fact about this project is that it will be built on the BSV blockchain, which provides a reliable and efficient foundation due to its unbounded scaling, low transaction fees, and locked-down protocol.
Another amazing fact is that the founder of Faiā, George Siosi Samuels, happens to be of Tuvaluan descent, making it a ‘personal’ project, so to speak.
Samuels has written previously about how digital assets can expedite the country’s digital transformation while mitigating the effects of climate change. His works made the government reach out to him to be part of the national digital ledger project.
This project does not come cheap, especially for an economy like Tuvalu. The country is funding this project from the proceeds of its ‘.tv’ domain.
Factors Driving Adoption
Factors driving the adoption of cryptocurrencies and blockchain technology in Tuvalu are climate change, limitations of traditional financial institutions, and the government’s support.
Source: borgenproject.org
Climate Change
This is a major driver of the adoption of blockchain technology in Tuvalu. Its drastic effects on these islands create the necessity to explore climate-friendly solutions, which the blockchain and crypto technology present.
The paperless economy, for instance, translates to less cutting of trees, which are part of the solutions to the climate change crises.
Although there is no paper money from Tuvalu (as the country uses coins) and adopts the Australian currency as legal tender, the national digital ledger project in-works may eliminate other uses of papers such as credit histories, land registries, national identities, etc.
Limitation of Traditional Banks
The Asian Development Bank in 2019 reported that there are only two banks in Tuvalu—a national bank and a development bank, with a handful of small, informal moneylenders. The need to beat queues and process quicker transactions is triggering Tuvaluans to explore cryptocurrencies. Moreover, the lower transaction costs are incentives.
Government Support
Despite no dedicated legal framework governing cryptocurrencies, the Tuvaluan government has been supportive of digital technology, in particular, blockchain technology.
Source: cyprus-mail.com
In the words of Samuels:
“We are very fortunate that the government immediately understood what the broader proposal meant and were willing to take a leap and become the first government to use Metanet as a system for civic management.
With strategic application of state-of-the-art encryption technology, we can keep private information private, while giving anyone accessing the private information a very public and open means by which to verify its provenance”, he adds.
Challenges Facing Crypto Adoption in Tuvalu
The challenges affecting the adoption of cryptocurrencies and blockchain technology are enormous. Here are some major ones.
Regulation Uncertainty
The lack of a legal framework governing digital asset transactions creates a gray area that poses doubts in the minds of prospective users of this technology.
Internet Limitations
There are concerns about the state of the internet in Tuvalu, especially for carrying out the national digital ledger project.
Source: kacific.com
However, the founder of Faiā, George Siosi Samuels, has this to say about internet distribution in these islands:
“But the Internet in Tuvalu is fast enough to do Zoom calls, most of the people already have mobile phones and some of them are finding solutions to get around the fact that most of the islanders can’t use their credit cards locally for a lot of online e-commerce services.
[The people of Tuvalu] are very much aware of what’s available in the world and their Internet infrastructure. They are already in the process of upgrading everything and they have access to the Internet that is adequate to get things online.”
This is a testament that internet distribution would not be a problem as it is satisfactory and okay to use on the blockchain.
Culture and Tradition
Another challenge is the cultural and traditional concerns of the Tuvaluan people towards modern technologies. Tuvalu consists of a very traditional community made up of 96% Polynesians.
Source: southpacificislands.travel
Traditional communities such as this are slow towards embracing new technologies, but Samuels, who also happens to be an expert on culture and community in the technology sphere, has to say:
“I’ve dealt with the cultural and change management aspects of many technology rollouts and companies, and I understand that a certain culture or group of people need to be ready for certain types of change.”
Economic Constraints
Tuvalu is a Least Developed Country (LDC), and as such, most of its citizens are fishermen and subsistence farmers, which could pose a threat to the adoption of cryptocurrencies and blockchain technology.
In response to this:
“Tuvalu wants to shift the narrative from being a sinking nation to becoming an innovative nation and they have a lot of very smart Tuvaluans that studied and moved overseas,”
He further went on to announce that the project would involve bringing back its skilled workforce that is in the diaspora to see to the implementation of the project:
“Part of this project is also about bringing the brainpower back to work in their ancestral homeland.”
The Potential for Cryptocurrency in Tuvalu
The following are the major potentials of crypto in Tuvalu:
Remittances and International Transfers
Alt text: A cross-view of a keyboard with a key inscribed with ‘Remittances’
Sources: techbuild.africa
In recent years, the United Nations reported that remittances from Tuvaluans working short-term or permanently in the diaspora hit 30% of the gross national income. In 2015, it was around 40%, only second to wages and salaries. About 51% of households received remittance transfers from overseas.
Cryptocurrencies could cater to these transactions, providing speed, security, and, of course, lower charges. Not forgetting the limitations of the traditional sector having just two banks in the whole country. Crypto could turn things around as transactions could be done anywhere and at any time.
Climate Change mitigation
Source: foei.org
Blockchain technology in itself provides a tool for tracking climate impacts and most especially managing carbon credits. What better currency could be used to trade carbon credits other than cryptocurrencies?
This would provide a transparent way that would equally open opportunities for international funding for the nation’s adaptation strategies.
Conclusion
Blockchain technology provides an avenue for recreating Tuvalu in the metaverse. Its culture and heritage would not be lost or forgotten even after its ‘demise’. But until then, this technology, alongside crypto, presents a channel that helps address the effects of climate change by making the country a paperless economy.
This factor (climate change) and the low cost of international transaction fees are driving the adoption of cryptocurrencies in these islands. However, concerns about its economic constraints, limited internet infrastructure, regulatory uncertainty, and cultural acceptance are
