Coronavirus and Introduction of Digital Dollars in the USA
Tensions continue to grow as the number of confirmed Coronavirus cases in the USA keep rising day by day, making it the new epicenter of this global pandemic. With over 100,000 cases, medical centers in major cities like New York City, Detroit, New Orleans have raised alarm regarding the scarcities of drugs, equipment, supplies and professionals.
With countries all over the world in lockdown and economies facing extreme uncertainty, the United States put forward an extremely ambitious welfare program, which will come true with the help of digital currency.
They’ve raised the possibility of introducing “digital dollar”, a method of doing payments digitally, proposed by Rashida Tlaib, and Nancy Pelosi. Per the draft, the following is the definition of a "digital dollar":
- 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).
These digital currencies will be kept in digital wallets, that are the accounts where you can store these dollars, tied to the digital/physical identities put forward and maintained by the Federal Reserve Bank.
It’s a place to directly retain central bank digital dollars where the central bank itself is the mediator instead of a third party, the middle series banks that would be responsible for the money.
According to Tlaib’s draft, these digital dollars could be circulated within the US by introducing a pre-loaded debit card that gets periodically updated with the latest welfare payments.
How can people acquire Debit cards?
These cards could be issued via some of the listed methods-
Direct Mail - If a person has an active address on the file with any government agency can get a card directly through the mail.
Self-pickup - If one has no permanent address or cannot access mail services due to other reasons, they can pick up their cards from banks or specified distribution centers.
Organizations - If one can’t do either of the two mentioned above, an outreach organization can reach out to them as a partnership with banks and other organizations.
Even though the central bank holds the responsibility of this money, the related commercial banks are to provide a pass wallet for these digital dollars. These pass wallets will be a different bank account with special features.
There won’t be any registration fees or limits, will pay regular interest and in no way threaten the normal bank accounts. These member banks will be provided ¼ of the costs for offering these wallets to the public.
Using digital currency comes with its own set of perks.
First, no other viable option exists when the goal is for the immediate availability of this currency in the hands of the public.
Segregation of people based on those who deserve, those who don’t and ensuring that the ones who deserve to get paid get paid, take a lot of time & money, both of which the USA is currently lacking.
The need to make recurring payments is an essential factor and comes with its own set of security concerns, it must be ensured that the money is directly added to the recipient and the distribution costs are kept low.
Through this dollar-backed digital money, people could understand that they can have full access to their financial properties through other digital assets. However, this solution comes with its own set of dedicated criticisms, some say forcing consideration can use the deployment of currency, yet this is an extremely large undertaking and a lot of debate, discussions, smart trade-offs and well-designed choices.
The priority is to emergency fund the needy businesses and individuals through pre-existing channels. Rather than jumping into a full-blown decision as full implementing a dollar-backed digital money. It would be more effective to take measures to curb the arising problems relating to the lack of resources and high needs of the people.
Digital payments are the only real system that can work in the present. Bank transfers may fail to reach the people who don’t have access to it.
A bonus of this system will be that the data that the Federal Reserve can keep track of how this money is being used and trace its history, which can help them divide and segregate the users accordingly and distribute resources effectively.
The design of this new project can help resolve some issues faced by people as the market faces a sharp drop. As they face a major crash in the economy, the need for digital payments has become a necessity. Covid-19 recession brought in a major divide between over cost and the need for digital payments.
The lack of access to basic banking due to transactions in the US is distinguished based on income. The higher your income, the higher is the perks. Low income, no perks. Since many deposits are unbanked, access to digital payments become a luxury due to the expensive purchase of fees on every service takes every month.
The goal isn’t to do away with banknotes; instead, it is to simply introduce a new system of currency that will ensure a smoother flow of transactions. Since the money is the responsibility of the federal reserve, the money that will enter this circulation will be backed by them.
There are numerous speculations about how the money network will work and other technical concrete details. Some professionals like CFTC chairman Christopher Giancarlo mentioned that technical details are not the difficult part. Questions like governance and distribution which are what this new proposal aims to resolve. This is the largest welfare program ever introduced in history, it promises a lot of benefits.
Even if the system can be improved with Fed Accounts, it will also cause a lot of hindrance to the banking system of the United States. Due to the Coronavirus, the USA will see a tremendous change in its economy. It’s difficult to predict what lies ahead in the times when we face such a crisis like this. The challenges lie ahead for the Federal Reserve about how they would implement these services and how would it impact the current banking system.