Somewhere in the Marshall Islands, a citizen receives a universal basic income payment directly to a mobile wallet. There is no bank branch, no paper check, and no in-person distribution involved. The funds come from USDM1, a United States dollar-denominated sovereign digital bond backed one-to-one by short-term United States Treasury bills and recorded on a public blockchain.
For a developing island nation with limited banking infrastructure, it represents exactly what advocates promised digital public finance could be: instant settlement, logistical simplicity, and financial access for people the traditional system has never reached.
It also illustrates a truth that early pilot programs are forcing governments to confront. The success of digital public finance will depend far more on compliance than on technological capability.
The adoption-infrastructure gap
The Marshall Islands is not alone in this experiment.
The Bahamas launched the Sand Dollar in 2020, the world’s first fully operational retail central bank digital currency, specifically to address hurricane disruptions to physical currency distribution.
Nigeria introduced the eNaira in 2021 to reach its large unbanked population. Jamaica rolled out JAM-DEX in 2022, and Slovenia issued the first tokenized sovereign bond by a European Union member state in 2024.
Yet despite technological success, actual adoption tells a different story. The Bahamas created over 200,000 digital wallets in a population of 400,000, but circulation remains low at less than 1 percent of total currency issued. Nigeria recorded 13 million eNaira wallets, but the International Monetary Fund found that 98.5 percent were inactive. Jamaica’s JAM-DEX struggled because merchants needed to upgrade point-of-sale devices and banks lacked incentives to modify their ATMs for digital currency conversion.
The pattern is consistent: governments can build the technology, but they struggle to build the institutional infrastructure that makes people willing and able to use it.
Compliance architecture gap
Here’s the core problem: Governments are deploying technology that enables real-time borderless transactions, but their compliance systems are built for a world of batch processing, physical documentation, and correspondent banking relationships that take weeks to clear. This system’s mismatch creates real exposure. A system that can move money instantly across borders requires anti-money laundering controls, sanctions screening, and supervisory capacity that operate at the same speed. Most finance ministries don’t have these capabilities.
The sticking point for finance ministries is not the blockchain itself; it’s everything around it. Governments need anti-money laundering controls that can meet Financial Action Task Force (FATF) standards for virtual assets, real-time sanctions screening capabilities, custody arrangements that satisfy international banking partners, and legal frameworks that cover virtual asset intermediaries.
What they typically have are compliance systems designed for operational legacy financial activity like conventional banking, supervisors trained on traditional audit procedures, and laws that don’t recognize tokenized instruments.
This institutional gap explains why promising pilot programs struggle to scale, and also explains why the stakes are higher than they appear. According to the World Bank, Pacific island countries have faced a 60 percent decline in correspondent banking relationships over the last decade (double the global average of 30 percent) largely because international banks have regarded their supervisory capacity as inadequate.
A poorly designed digital finance launch can accelerate that trend rather than reverse it.
Building toward solutions
The Marshall Islands made a smart design choice: USDM1 sits inside familiar financial law. It’s not a stablecoin, but is a sovereign bond governed by New York law, secured by Treasuries, with the digital layer sitting on top of existing, understood structures.
That design conservatism matters, and the compliance framework built around it offers a useful model for other governments considering similar digital instruments. But even with this conservative approach, significant institution-building remains necessary.
The Marshall Islands prepared to ensure it had the institutional structure to support USDM1. It mapped its statutory framework against FATF standards to ensure that in the future it explicitly covered additional virtual asset service providers, including custody requirements for tokenized instruments, cross-border transaction reporting thresholds, and transaction monitoring for digital wallets and assets. It developed a robust oversight framework that leveraged its existing system with training on blockchain analytics and examination procedures for virtual asset service providers. That means partnerships with experts, investment in additional team members, and new examination processes.
The Marshall Islands’ compliance-first approach is paying off. The Bank of Guam recently announced it will support USDM1 deposits, withdrawals, and wallet integration. Given the Bank of Guam’s presence throughout the Pacific, this integration will likely expand the use of USDM1 significantly.
As this work continues, it is important to keep in mind the key initial use case for USDM1, which was providing universal basic income and connecting the people of the Marshall Islands.
This basic purpose creates inherent tension that has to be designed around rather than deferred. Citizens expect ease in obtaining benefits and services. Regulators expect controls that meet FATF guidance standards.
One approach is tiered verification: Basic access granted with minimal governmental identity documentation, unlocking fuller services as users provide additional verification over time.
Rather than treating compliance as a gate, this progressive approach treats it as a facilitation on-ramp, one that keeps low-risk, low-volume users inside the formal system while meeting supervisory requirements as transaction values grow.
Too much user friction at entry excludes vulnerable households that these programs were designed to reach. Inadequate compliance controls at scale will fail to meet supervisory requirements and endanger correspondent banking relationships that allow the system to function.
The path forward
The pattern from early pilots is clear: Governments can deploy blockchain technology in months, but building the institutional infrastructure to support it can take years.
Countries that invest and implement robust compliance architecture, legal frameworks, and international banking relationships ahead of launch will set the norms for digital sovereign instruments. Those that don’t will find themselves with pilots that may work technically but will not be able to scale because globally no one else in the financial system will partner with them.
The hard part of digital public finance is not building the blockchain. It’s building a lower friction compliance architecture that allows everyone else to use it.
Julie Myers Wood is CEO of Guidepost Solutions, bringing more than 30 years of experience across government and private-sector regulatory, compliance, and enforcement roles, including leading 15,000 special agents, lawyers, and officers at DHS’s Immigration and Customs Enforcement, and serving in senior posts at the Departments of Justice, Treasury, and Commerce, as well as the White House.