A federal bitcoin (fedcoin)?
An idea debated for some time, the current financial crisis brought on by the coronavirus pandemic has boosted its profile.
Just as email is faster and more cost-effective when compared with its “snail mail” counterpart, so too are digital dollars—created by the Federal Reserve—when compared with hard dollars and related currency.
The argument for their use is the speed with which the government could get stimulus dollars into the hands of consumers, better cushioning the blow from serious market shocks and steep economic downturns.
They’re also offered as a solution to what supporters say is a cumbersome and onerous financial system.
“Instead of the Fed taking action to influence market rates, which can be a fraught process, it could offer interest-bearing accounts directly to the public,” The Wall Street Journal explained Tuesday. “Then, by changing rates at that level, or even straight-up adding Fed-created money to the accounts, it could influence economic decision-making at the household level.”
Democratic proposals
Two separate stimulus proposals contained language that would establish digital dollars, as well as the “pass-through” rules for financial institutions where “digital wallets” would be held. The “Take Responsibility for Workers and Families Act’’ spearheaded by House Speaker Nancy Pelosi, D-Calif., stripped the digital dollar proposal on Monday.
Yet an alternative bill, the “Financial Protections and Assistance for America’s Consumers, States, Businesses, and Vulnerable Populations Act (H.R. 6321),” from Rep. Maxine Waters, D-Calif., maintained the language.
“The term ‘digital dollar’ shall mean a balance expressed as a dollar value consisting of digital ledger entries that are recorded as liabilities in the accounts of any Federal reserve bank; or an electronic unit of value, redeemable by an eligible financial institution (as determined by the Board of Governors of the Federal Reserve System),” the Waters bill reads.
Critics contend user privacy could be compromised.