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US Lawmakers Says Digital Dollar Is The Currency Of The Future

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The United State of America (USA) and its task force on financial technology will be evaluating the use of the digital dollar and other digital tools. This is to help the federal government distribute stimulus payments to help Americans suffering from the economic impact of Covid-19.

The decision to consider the use of digital dollar was due to the hiccups and bottlenecks around the slow Covid-19 stimulus payments to its citizens. In a bid to facilitate the U.S’ legacy financial infrastructure, there was a hearing by the U.S Congress on the use of digital dollar. 

Christopher Giancarlo, former Commodity Futures Trading Commission (CFTC) chair and Digital Dollar Project director, University of California Irvine School of Law was a witness at the hearing. “We think that this both addresses the concern that this particular hearing is there to address but goes way further by also future-proofing the dollar for the coming digital 21st century. Things of value will be increasingly tokenized, decentralized, and programmable, and we think that the United States needs to recognize the direction that the world is going,” he said. 

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Why Is U.S Interested In Digital Dollar?

The committee in charge of this bill wants to use the FedAccounts to manage digital currencies during the pandemic. They want the bank accounts managed by the Federal Reserve to issue stimulus payments. The U.S. government has issued one round of payments by check, but only individuals who have filed taxes within the last two years received them. This is the idea behind the digital dollar.

With the digital dollar, U.S. residents could receive these funds in a snap, instead of waiting for a piece of paper mailed across several weeks by the Internal Revenue Service (IRS).

Also, the intense scrutiny and examination of the FedAccounts by America’s Congressional Fintech Task Force. They said the use of digital dollars in expanding financial reach in the United States is indeed a welcome development. Under one proposal, U.S. citizens would be gifted a digital wallet, called a FedAccount, maintained by the Federal Reserve.

Therefore, all hands are on deck in making this big move see the light of the day. The sooner the United States adopts the use of this digital dollar, the better. This is not just for the pre and post-COVID-19 era, but for the long-term commercial and financial inclusion.

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What You Need To Know About Digital Dollar

A digital dollar is not a representation of the dollar, it’s a dollar. It’s just in a new format and would have the same legal status as the physical cash that’s in your wallet today.

The U.S government is at the verge of considering a framework that will birth a Central Bank Digital Currency (CBDC). This digital currency would be mined through the blockchain protocol, transferred between users, and recorded in a public ledger.

However, this digital dollars would be stored in a distributed database via the internet, on an electronic computer database, within a stored-value card or virtual files. It will please you to know that this is not a decentralized blockchain-based token, but rather a debt notation on a centralized ledger maintained by the Federal Reserve.

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What Are The Pros And Cons Of A CBDC?

There are debates about the digital dollar with China and some other countries. All stakeholders, with a vested interest, are bringing the discussions of the Central Bank Digital Current (CBDC) to the front burner.

According to the International Monetary Fund, some of the pros hovers around strong and better financial inclusions. Another is the efficiency of payment systems and a bigger negotiating table for managing monetary policies.

Obviously, all of these will be based on a strong backing by a trusted government. This is because Central Bank Digital Currency (CBDC) may limit the adoption of privately issued currencies.

Against the backdrop of the pros are the cons which are centered around minimizing financial intermediaries, most definitely, the banks. More so, the Central Banks could see their balance sheets balloon. As the economy improves and inflation sets in, the Central Bank could find it difficult to manage inflation because of the bloated balance sheet.

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Who Else Is Developing CBDCs? 

Sometime in April, the People’s Bank of China (PBoC) aimed to roll out internal tests for the national digital currency. The Chinese have continued to renew their commitment towards creating a digital version of the yuan. 

A state-owned bank tested an interface for a digital yuan. They’re piloting a Digital Currency (DC) or Electronic Payment (EP) in four cities to mop up some of its cash supply.

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