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Negotiations over the $2.2 trillion coronavirus aid package signed by President Trump on Friday weren’t just historic for the cost, nor the speed with which it was reached.
Though not included in the final package, Congressional Democrats used the debate to push for the creation of a “digital dollar,” that would be backed by the Federal Reserve, along with accounts for every American at the central bank — a historic step forward in support for widespread digital currency use that has been lauded by progressives and cryptocurrency enthusiasts alike.
Read more:Why the coming recession could force the Federal Reserve to swap greenbacks for digital dollars
“A digital dollar would be embraced by the crypto community,” said Tom Lee, head of research at Fundstrat Global Advisors and noted bitcoin bull. “It’s positive because it’s making the world more comfortable with native digital assets.”
A Fed-backed digital dollar wouldn’t be a cryptocurrency based on decentralized blockchain, the ledger-based technology that underpins traditional digital currencies like bitcoin BTCUSD, +7.15%. It would merely be a digitized form of the fiat dollars that the Fed issues, and with which Americans are the most familiar, essentially antithetical to assets like bitcoin, in the eyes of cryptocurrency purists.
Because of this difference, Lee said, a digital dollar would be a compliment, rather than a competitor to bitcoin. “I think the strength of bitcoin would be more obvious, because its more anonymous” than currency the government can easily track.
Sen. Sherrod Brown, ranking member of the Senate Banking Committee and Maxine Waters, chairwoman of the House Financial Services Committee each introduced legislation last week that would require the Fed to create so-called digital dollars and for member banks of its regional satellites to create accounts whereby Americans could access their digital bucks, free of charge. The Fed would then have to reimburse banks for the cost of maintaining these accounts.
A main reason these electronic bills were proposed last week, during negotiations over the $2.2 trillion stimulus package, are the difficulties that the government will have in getting the $1,200 payments that most Americans are owed according to the legislation, because many lack back accounts and the government lacks a current address to send a physical check.
“The poorest lack access to basic banking because payment mechanisms are highly segregated by income, by design,” wrote Aaron Klein, director of the center on regulation and markets ant the Brookings Institution, noting that one out of every 14 households in America have no bank account.
The impact of this state of affairs could have macroeconomic effects, as it will result in a slow distribution of stimulus funds to those who need it most, blunting its impact in an economy that has ground to a halt as governments across the country race to stop the spread of COVID-19.
“My legislation would allow every American to set up a free bank account so they don’t have to rely on expensive check cashers to access their hard-earned money,” Sen. Brown told the American Banker.
While a digital dollar didn’t make it into the final stimulus legislation, that it concept is now being taken seriously by high-profile lawmakers in Washington is another signpost on the road to a digital-money future, said Carlos Domingo, CEO of Securitize. “The question is not if a digital dollar will be created but when and how.”
He argued that a central bank digital currency could be a useful supplement to the growing ecosystem of cryptocurrencies, or more specifically, so-called stable coins, and firm’s like his which use a form of blockchain technology to digitize other types of financial assets and make their transfer more efficient. “If you have a digital representation of a security, which is what blockchain solves, and a digital representation of a dollar, that enables efficient settlement of transactions.”
Before the viral outbreak, so-called stablecoins, those backed by fiat currencies like dollars DXY, +0.79% or euros EURUSD, -0.9786%, were becoming increasingly popular across the globe, chiefly because traditional cryptocurrencies, underpinned by blockchain, have been too volatile. One key distinction with a Fed backed stable coin would be that the central bank would authorize transactions, but in bitcoin anyone with enough computing power can authorize transactions and are rewarded with the digital currency.
