Triggering the Creation of a New Government-run Platform
On the back of the pandemic-fueled crisis, governments worldwide have pledged more than US$10T in fiscal support, with total virus-relief spending in the US alone standing in excess of $2T. Eligible Americans are now receiving cash handouts of up to $1,200 in their bank account using existing methods such as direct bank account deposits and postal delivery paper cheques – unproductively distributing these funds via a slow and expensive traditional banking ecosystem, being supported by a manual process network.
Global discussions on the prospects of introducing a central bank digital currency (CBDC) have generally remained high level and have also lacked any practical application, but on the outset of the CV-19 crisis, it may just end up being the important turning point required to reinvigorate the discussion. American policymakers now seem to seriously be considering the idea that the Federal Reserve should issue “digital dollars”.
Soon after the US fiscal support announcement was made in March this year, powerful Democrat policymakers proposed a new Bill seeking the creation of a new, government-run payment platform that would run a digital version of the US dollar and would be included in the CV-19 driven stimulus package. Another House Bill called “Banking for All Act“, sponsored by US Senator Sherrod Brown calls on the government for the bill to be included as part of the the coronavirus economic stimulus package.
Senator’s Brown recent press announcement clearly sets out the intentions of his “Banking for All Act” Bill:
‘At the height of this pandemic we must do more to protect the financial wellbeing of hardworking Americans and consumers. They are on the front lines of this crisis and are already feeling the effects of the economic fallout. 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.’
The Bills can be found here:
- Banking For All Act
- House Democrats Counterproposal For Stimulus Package – See page 314 onward.
The bills provide definitions for digital dollars, digital wallets, digital ledger entries and it offers the provision for a “pass-through digital dollar wallet” where the intend is to mandate for all member banks to open and maintain digital dollar wallets on behalf of all citizens, including those eligible to receive the stimulus. The pass-through digital wallet Bill section also promotes and embeds consumer protection statements by describing that digital wallets ‘shall not be subject to any account fees, minimum balances, or maximum balances and shall pay interest at a rate not below the greater of the rate of interest on required reserves and the rate of interest on excess reserves‘.
Unfortunately, the proposed platform didn’t make the final release for the coronavirus response bill. Nonetheless, the digital dollar journey move just got closer than ever to becoming a reality, and Covid-19-fueled crisis may be an important turning point in helping the move.It is worth noting that China has been preparing the roll out its own version of a digitised domestic currency during this year. Under their Digital Currency Electronic Payment (DCEP) initiative, the new digital currency will stimulate daily banking transactions including deposits, payments, and withdrawals from a digital wallet. The DCEP project will also be powered partially by blockchain technology (distributed ledger). In April 2020 China announced that it has implemented the first mobile wallets and now have them enabled to work with DCEP. The project is currently in advanced testing phase across 4 Chinese cities – Shenzhen, Xiong’an, Chengdu and Suzhou.
It is indeed very encouraging to see new developments and the use of efficient technology improving costs, enhancing efficiency and the overall well-being of citizens across the world. It is true also that a new system can always improve the way baking and financial services is delivered now and into the future, but any such a changes could also cause significant disruption to the current banking system if these developments are not controlled and done in accordance with all required prudential regulation and multi-party collaboration.