The coronavirus stimulus package has resurrected calls for the U.S. government to offer a central bank digital currency, public mobile wallets and postal banking—controversial ideas that are hard to pull off, but exist outside the U.S. and could dent interchange fees and private stablecoin projects like Facebook’s Libra.
The $2.5 billion
There’s traditionally lots of political opposition to these ideas, and the digital dollar language was dropped Tuesday morning. Rep. Maxine Waters, D-Calif., has also proposed a bill that would provide a U.S. “digital dollar.” And Rep. Rashida Tlaib, D-Mich., has pushed a bill that would create a Treasury-administered public currency wallet. These proposals would use the U.S. Postal Service to establish ID for underbanked consumers. Post offices would operate ATMs as part of the model.
On the state level,
Many of these ideas have been around for years. But it’s unusual for such a proposal to make it as far as a formal bill and generate mainstream media attention in the U.S. That suggests the financial crisis that accompanies the pandemic will give new political life to public financial services that operate free transfer apps or Postal banking. The
The House proposal details a digital ledger that would be tied to the Federal Reserve. That’s not a cryptocurrency per se, but it does resemble central bank projects around the world that would create central bank digital currencies (CBDCs). Many of these projects were launched in direct response to Facebook’s Libra, and the Democratic proposal is a financial inclusion play that has many of Libra’s stated goals.
“These ideas take advantage of the face that the financial system rests on the payment system,” said Robert Hockett, a law professor at Cornell University. “If you want full financial inclusion, the best way is to offer full payment inclusion.”
The idea is if everyone has a digital wallet that connects to the Treasury or Fed, all people can make P2P transfers, pay taxes, and receive tax refunds, which are one way the coronavirus relief package will distribute money to residents.
“That would create a lot more flexibility in the payment system,” Hockett said.
Providing a digital option to receive government stimulus checks is additionally a matter of safety.
“Using mobile remote deposit capture to open & fund a new account instantly is compelling, especially for newly economically challenged people,” said Richard Crone, a payments consultant. “Avoiding a virus-laden ATM and socially distanced, restricted access and closed bank branches makes a lot of sense.”
A digital dollar would also pressure
Postal banking exists outside of the U.S. in nations such as
Facebook has argued that Libra will spur financial inclusion, something a government-backed digital currency would also provide. Universal digital currency would also pressure interchange fees for card network payments at merchants because consumers would have another option, Hockett said.
But there are challenges to the idea in the U.S. that go beyond political opposition from advocates of the private banking system.
“There is a lack of definition regarding the ‘connective tissue’ that would be required to link the account held by the Fed as a liability to the mandated ‘pass through digital wallet’ provided by the banks to the owners of the account,” said Tim Sloane, a vice president at Mercator Advisory Service. “That is not just a technical problem; the architecture of any solution for this will also have political ramifications related to identity, privacy and control.”
