Blockchain Technologies for Micro States

By Robert Koenig

Small countries have always been dependent on the support of larger countries or international organizations, and in many cases, larger local problems can only be resolved with external support. These micro states are defined by the World Bank as having a small population, limited human capital, and a confined land area.

Looking at the current situation, and again according to the World Bank, small countries share the following challenges:

  1. Governments must play a significant role due to the high demand for expenditures.
  2. Providing public services to small scattered populations can be costly.
  3. Small island states are highly exposed to climate change and natural disasters.
  4. Recurrent financial, climate, and disaster shocks reduce the fiscal space.
  5. Small countries rely on international finance to supplement their fiscal envelopes.
  6. Small countries do not easily fit the standard development model.
  7. Typical policy regimes include common currencies (often linked to the USD), currency boards, and fixed or heavily managed exchange rate regimes, and domestic monetary policy tends to be imported from abroad.
  8. Small countries lose the nominal exchange rate as a flexible adjustment mechanism and must rely on flexible wages and prices to absorb shocks.


Software may not always be the best solution to a problem – yet many times it can prove a valuable enabler to modern world issues. And with the creation and ongoing popularity rise of Distributed Ledger Technologies (DLT) – of which blockchains are the most popular example – the trust gap has been closed, opening the door to new solutions.


Small countries historically suffer from a host of financial problems. While many solutions have been proposed and attempted, existing means have offered little success.

The first step toward the historic resolution of these problems should therefore go beyond current solutions. In this light, it is right that we consider an entirely different approach, one that can truly benefit the citizens of the countries involved with actionable change.

By drawing upon blockchain technology and further DLT solutions as the field advances, small countries finally have a chance to make the fundamental evolution required across management of both their sovereign currencies and all related financial procedures. The many benefits of blockchain-based financial development include:

  • Efficiency: Remittances and international transfers will become significantly faster and cheaper, with open-ended potential for refinement as small country situations regroup with larger state economies.
  • Independence: The need for correspondent banks will be removed by DLT, enabling small countries to exercise their independence and minimize new debt. Small country governments will also be able to interact directly with their populations, promoting national productivity without intermediary inclusion of foreign banks or other third parties.
  • Transparency: All funds involved in DLT processes are 100% traceable with money unable to “disappear” in a blockchain. Interested parties of any level (from government to citizen) are able to check the details of national funds at any time, preventing corruption and theft.
  • Disaster response: The immediacy of blockchain transfer means that, in case of emergency, small country governments can react financially within minutes. This benefit is of vital importance to many small countries, for example those that make up the Caribbean and other archipelagos susceptible to natural disaster.
  • Automation: Blockchain ledgers and related DLT automation technologies exhibit the latest in digital money management potential. Smart contracts are one main feature, ensuring that transfers and other arrangements are carried out transparently every time, with zero need for a third party.
  • New Possibilities: Loans, grants and more financial procedures can be conducted directly between government and consumer. These many forms currently include know-your-customer and anti-money-laundering procedures, credit checks, taxes, payment plans and recurring transactions – a list of possibilities that will continue to grow along with national progress.
  • New Financial Instruments: Instead of issuing bonds (a tool used by large countries yet not available to small countries) or applying for grants/loans to fund larger projects, a small country government can use an Initial Coin Offering (ICO) as a funding mechanism. ICOs are the most efficient and cheapest funding process of the digital age – easier to create than bonds and capable of attracting a global investor base. The potential of ICOs is still being realized, and the future is bright.


Furthermore, blockchain technologies offer a new route for small countries to replace, consolidate or optimize their array of essential government services – from record keeping processes such as health and safety, court, vehicle, identity (passports, visas etc.) to notarizations and certificates like birth/death, building permits and business licenses.

The smart contract technology of DLT – as well as further supporting mechanisms – will enable the removal of historic fraud and identity theft issues from these fields.

Public procurement – defined as the purchase of goods, services and works by governments and state-owned enterprises – plays a major role in fostering public sector efficiency and establishing national trust.

Blockchain technologies provide small country governments with the best means to practice successful public procurement, with each phase of the process logged clearly and with full transparency on the blockchain.

All parties are able to access and review all related data with free access to public procurement information, from the very beginning of the budgeting process to the conclusion of national fund adjustments.

Blockchain technology is responsible for this massive step in promoting honesty throughout small country procurement, benefiting both national citizens and relations with larger states. The result is an overdue state of clarity, and only the start of what is now possible with digital money management solutions for small countries.

The author is economist and executive director at Xentavo, a white-label blockchain framework aimed to provide sovereign digital solutions and cryptocurrencies for small countries.