There are many implications for the possible approval of a digital dollar in the United States. When the idea of one was mere rumor within the cryptocurrency space, it was already agreed that the US having a digital version of its currency would be the biggest stamp of approval for cryptocurrency in history. This is in addition to the millions of people who would be introduced to the concept as a result. As the idea is becoming more of a reality, everyone from current crypto users to lawmakers are having to grapple with the world of benefits and the possible pitfalls of a digital dollar.
The Great Crypto Race
At this point, it is impossible to ignore the great attention that countries around the world are paying to the idea of digital currencies. The once novel concept is not only being embraced by world governments but there is almost a race of sorts between countries for the development of a national token. This includes China, who are in the process of piloting their digital yuan token, as well as France who are testing their digital euro. Other countries like the Bahamas and the British Virgin Islands are also looking into digital versions of their existing fiat currencies.
This begs the question of what caused the sudden interest among these countries towards digital currencies. One possible answer is the rise in cryptocurrencies as a whole. It is largely believed that bitcoin, the world’s most popular cryptocurrency, was created in response to perceived flaws in the global financial system. Bitcoin and other cryptocurrencies offer anonymity to a degree, faster transaction times, and lower fees for consumers. Understandably, its popularity has been seen as a potential threat to the economic power of world governments. Following Facebook’s announcement of their own Libra token to be used by their over 2 billion users in 2019, the development of digital tokens was accelerated, even as the project itself faced criticism for threatening economic sovereignty.
With China and the Eurozone on track to have their own digital tokens, it only makes sense that the United States would not want to be left behind either. By November of the same year, Forbes stated Visa had filed a patent for a technology gateway that would allow any country to create a digital version of its existing currency. This was a testament to the growing need for CBDCs that was only bound to unravel in 2020.
The official whitepaper for the digital dollar was released on May 28, 2020, by the Digital Dollar project which is a partnership between Accenture (NYSE: ACN) and the Digital Dollar Foundation. The purpose of the project is to explore the possibility of a digital dollar token and was founded by former leaders of the Commodity Futures Trading Commission in conjunction with Accenture.
The project aims to encourage public discourse and develop a potential framework around the proposed token. The whitepaper reflects this goal and suggests that the digital dollar be used in partnership with existing institutions. It was also suggested that the token be used for international remittances, particularly those between the United States and Mexico. These are not the only places where a pilot can be applied, however, and the whitepaper states that engage with engagement with stakeholders, the public sector, and advisory groups will aid in identifying more use cases.
Because the US dollar is already used in so many sectors and a digital version will have even more reach, Daniel Gorfine, the former head of the CFTC’s fintech office, stated that the uses of the token will be divided in its development.
“Piloting can take place in different pieces or bites relative to the overall topic. You can imagine, for example, exploring tokenization and its impact on financial inclusion and access. You can separately look at government benefits programs and how to disburse to individual recipients,” he said.
In light of the criticism that previous tokens such as Libra have faced, the whitepaper emphasized that the digital dollar does not intend to act as a replacement to the existing fiat currency. Instead, the whitepaper says, the current process of currency being issued from the Federal Reserve to financial institutions before reaching the public will be maintained.
“A digital dollar will be distributed through the existing two-tiered architecture of commercial banks and regulated intermediaries,” says the document.
With regard to decentralization, Gorfine says that the project intends to pursue that to a degree by working with regulated private institutions as, “Public solutions would only make sense if there are remaining gaps and problems to solve for.”
Implications of COVID-19
The COVID-19 outbreak caused a significant disruption in the global financial ecosystem and this included the digital dollar. Some would argue that it accelerated its development and further exposed the need for it. Because banks worldwide were forced to close their physical locations, people were forced to make greater use of online banking and following the end of lockdown measures, this is expected to continue. Simply put, COVID-19 revealed how essential a cashless and contactless world is and the digital dollar fits in with this concept. After all, payment platforms such as PayPal and CashApp saw a surge in use during
lockdown and as they become the norm moving forward, the arguments for digital tokens will only become more prevalent.
When this is coupled with the fact that other countries are continuing to pursue their own CBDCs, the need for a digital dollar is indisputable. It has been reported that one of the driving factors behind the digital yuan was China’s desire not to be left behind in the great token race. Considering the fact that other countries are already at the testing stage and the United States only has a whitepaper to speak of, it seems that they are the ones at risk of being left behind.
As the middle of 2020 draws closer, the Digital Dollar Project might take its next big step towards development and eventual launch.
Image via shutterstock, Writer Tokoni Uti