In a significant update, the Office of the Public Auditor (OPA) in Palau has disclosed the findings from the performance audit of the government’s pioneering project involving a stablecoin based on the XRP Ledger. This initiative, named the Palau Stablecoin (PSC), was notably funded by Ripple Services Inc. who contributed a total of $25,000 over a 25-month period, with about half of that amount utilized to date. The audit, which encompasses 12 pages, concludes the financial overview of the PSC project, which was active from October 26, 2021, to November 27, 2023.
Confirmation of Ripple’s Funding for Palau’s Stablecoin Initiative
The audit reveal that Ripple wired the $25,000 grant to the National Treasury on March 10, 2023. The Ministry of Finance (MOF) utilized $14,035 of these funds mostly to reimburse three local merchants—Surangel & Sons, Penthouse Hotel, and King’s Minute Mart—for PSC tokens redeemed by 154 government volunteers, each receiving 100 PSC, equivalent to the US dollar. The remaining $10,965 is currently held in the Treasury, awaiting a political decision regarding a potential follow-up phase.
According to the audit, Ripple’s contribution was accurately logged under the fiscal year 2023 budget regulations (RPPL 11-24) and the OPA confirmed that it “was properly accounted for and deposited into the National Treasury,” thereby quelling previous concerns around the grant’s appropriateness within standard budgetary practices.
Initiated upon the request of Senator Mark Rudimch, the audit aimed to address legislative concerns that arose in July 2023 pertaining to the program’s constitutional validity and financial oversight. Consequently, the evaluation sought to determine if the MOF was legally permitted to partner with a private entity and adhered to Palauan law in the process.
Upon examination, auditors observed that the MOF “acted within its broad authority and did not violate its mandate.” However, they pinpointed two procedural missteps. Notably, the initial memorandum of understanding from October 2021 and the subsequent Ripple Master Hosted Stablecoin Services Agreement from December 2022 lacked certification “for form and legality” by the Attorney General, as stipulated by 40 PNC § 612. Additionally, the National Director of Program, Budget & Management failed to certify the availability of funds at the time the services agreement was finalized, contrary to the requirements of 40 PNC § 401(b).
“The Republic of Palau cannot ascertain the form and legality of the agreements as intended by law,” stated the OPA, recommending that the MOF should rigorously ensure that every governmental contract is certified by the Attorney General prior to execution. The MOF acknowledged this recommendation, yet clarified that “agreements that do not bind the Republic are often acceptable without AG review,” emphasizing their reliance on legal guidance from the Office of the President’s legal team. They also indicated that appropriate fund certification occurred during each disbursement and maintained that the grant was covered under annual outside-assistance provisions. “Thank you for the findings, which are accepted as presented,” the MOF conveyed to the auditors.
Future of the XRP Ledger Pilot: Legislation and Next Steps
Aside from procedural recommendations, the OPA provided a thoughtful review of the pilot project itself. It commended the initiative for exploring “technological solutions allowing the Ministry of Finance to manage the minting, distribution, redemption, and destruction of PSC…recorded on the public XRP Ledger.” The report recognized the potential for enhanced financial inclusion and reduced transactional costs. However, it also advised that any move towards deploying a circulating national stablecoin would necessitate explicit legislative approval from the Olbiil Era Kelulau (Palau’s legislative body). Absent such legislation, any expansion efforts would be deemed unlawful.
For Ripple, this audit concludes a three-year relationship, marked by a modest cash contribution of $25,000 in comparison to typical central bank digital currency pilot projects. While the audit does not assess the technical execution, it validates that the XRP Ledger efficiently managed mint-and-burn operations alongside retailer redemptions. As policymakers in Palau ponder the next steps, they face a critical decision: to draft the necessary legislation to transition PSC from a pilot project into recognized legal tender or to leave the remaining grant funds untouched and pause the initiative.
As of the latest market update, XRP is priced at $2.1696.
