The Democrats in the House of Representatives have now indicated that they are seriously considering creating a digital dollar. Digital peer-to-peer currencies, generally have faster payment processing times than traditional payment methods.
Federal Reserve not very enthusiastic about digital currencies — so far
Until now, the Federal Reserve had moved towards real-time payments without considering the use of digital currencies. Even the chairman of the Fed, Jerome Powell, was initially averse to the idea of a digital currency in the past. Only the rapid development through Facebook’s Libra made Powell stop and consider the development of a digital dollar. Powell also suspected that not only with an E dollar, but also with a global CBDC, problems could arise in connection with data protection and information security. Even though there have been repeated voices that digitizing the dollar would make the Fed more consumer-friendly, the Fed has so far been little receptive to this idea.
Helicopter money to be distributed via digital wallets
The Democrats now want to distribute the announced “helicopter money” in the form of digital dollars and use digital wallets accordingly. This is intended to make it easy and quick to pay-out direct emergency money to consumers. Even if they do not have a bank account. America is distributing such helicopter money as part of the Covid 19 economic stimulus program.
As part of this program, a legislative text (H.R. 6321) was published on Monday by the Chair of the Financial Services Committee. Under the bill, Federal Reserve banks and other financial institutions will be required to provide digital wallets to individuals and taxpayers. The preliminary agreement reached by Republicans and Democrats in the Senate provides for a one-time payment of $1,200 for single adults with an annual income of less than $75,000.
The Democrats’ bill in the House of Representatives proposes to pay $2,000 per month to each adult. As long as the current public health crisis persists. Payments would be made through the IRS by direct deposit, by cheque or through the proposed digital purses. In addition, Federal Reserve member banks with assets in excess of $10 billion will be required to support the digital wallets. The institutions are to be reimbursed for the costs of this.
The timing of the use of the digital dollar is partly criticized
In America there are also critical voices against the proposal to release the digital dollar. Daniel Gorfine, former Chief Innovation Officer at the Commodity Futures Trading Commission and founding director of the Digital Dollar Project sees the timing as unfavorable. The Covid 19 pandemic, as well as the associated economic shock, is not an ideal time to create a digital US currency. According to Gorfine, this should happen when the country has sufficient Internet capacity. Introducing a digital currency from a central bank involving the Treasury, the Fed and the private sector in the current crisis is very difficult, he says.
*Originally published in German at CVJ.ch