The Marshall Islands Government has made international headlines with its plan to become the first in the world to establish a digital currency as legal tender.

Even if it succeeds, critics are arguing that such a policy would undermine the Marshalls' very prominent stance on climate change, and actually expand the size of the North Pacific territory's own carbon footprint.

But Environment Minister David Paul, who co-sponsored the digital currency bill, said it was an opportunity for the country to be a global leader.

"We've experienced a nuclear testing legacy in the Marshall Islands. We've been waiting what, 50, 60 years, nothing happened," he said.

"Now we're confronted with climate change, no-one is coming to our aid.

"We have to do something as a sovereign country and we need to chart our own destiny."

But supporters of the digital finance strategy are apparently unaware of the enormous impact cryptocurrencies have on the environment, because of the vast numbers of computers that are required to make the system work.

The director of the Centre for Software Practice at the University of Western Australia, Dr David Glance, said the two best known currencies — Bitcoin and Ethereum — use as much electricity in a year as the whole of Venezuela.

"If you convert that into CO2 emissions, it's massive," Dr Glance said.

"So the idea that Marshall Islands are going to be contributing to their own demise by using a technology which consumes far more energy than normal transactions on the internet is something that they've overlooked, or chosen to overlook."

Marshalls aim to set standard on digital currency

So even if the digital currency takes off, the Marshall Islands Government would appear to be taking aim at their own feet on the question of global warming.

Giff Johnson, editor of the Marshall Islands Journal, said it was not as if the Government needed the money.

He said he believes the problem is that the money is not being well spent.

"What's going to change the picture is when people are willing to be held accountable for their work performance in government, and until that time, no amount of money is going to improve the basic health, education, and social indicators in this country," Mr Johnson said.

It took a week of vigorous debate to get the Marshall Islands digital currency act through Parliament, but in the end the bill passed with a clear majority by 20 votes to eight.

"It comes with a premium of being the first and I think it's an opportunity for us to write the script of how it should be done in a most proper, transparent and robust manner," Mr Paul said.

"The internet is there for the taking, the possibilities are there, but we're also mindful that there are risks associated with it."

Risks that many would argue the Marshalls can do without, having only just been removed from the European Union's money laundering blacklist, but Mr Paul said there would be safeguards in place.

Digital currency to work alongside US dollar

Dr Glance said part of that security process will require people who use the new digital sovereign, as the currency will be called, to offer proof of identity before they can transact.

"They've labelled that protocol, iokwe, which means hello in Marshallese, and essentially that means that it's all traceable," Dr Glance said.

"That would reduce the incentive first of all for people to invest in the currency, and secondly for people to actually use it."

Furthermore, even though the Marshalls Government says its aim is to establish the sovereign as the national currency, it has no plans to abandon its long-established links with the US dollar.

"Digital currency is there to be utilised in the information and the internet age, and that is an option for those who are engaging in those kinds of transactions, but we're not transitioning out of the US dollar," Mr Paul said.

Mr Johnson said that was just as well, as most people in the country are not ready for digital finance.

"In order to use digital currency, you have to be in the digital world," he said.

"Of course we do have thousands of cell phone users here, but your average person doesn't have that capability here, and also the minimum wage is only $US2.50 an hour, so I think there are lot of issues in all of this, for the local population's engagement."

Digital currency in 'a non-digital nation'

To emphasise the point, Dr Glance said internet in Marshall Islands is slow and expensive, as is the cellular network which is only 2G.

"They're not a digital nation," he said.

Dr Glance said questions were also being asked about the Israeli start-up group that put the idea of a digital currency to the Marshalls' Government in the first place.

"Who's going to monitor it, what's that monitoring going to be used for, what privacy measures will be in place, what does the Israeli company have to do with all of this?" he said.

"If they're providing the technology, is that run out of Israel? Is the data of the people of Marshall Islands going to be secure?"

Mr Paul said there would be an initial coin offering (ICO) capped at 24 million sovereigns, and the profits would be split.

"Twelve million of that will be going to our partner, the other 12 million will be the Marshalls, and in return they are going to be the ones providing all the technical know-how, the investment capital needed to get this thing off the ground and help us manage it," he said.

While the Marshall Islands Government and its Israeli partners ponder a date for the roll out of their digital sovereign, a huge amount of suspicion surrounds ICOs, to the extent where they have been banned in China and South Korea.

Although Mr Paul has promised that the Marshalls' ICO, if and when it comes, will be absolutely transparent, that might not be enough to persuade investors to back a new currency that analysts say is actually unlikely to rise in value.