The Future of U.S. Currency Is In The Digital Dollar

News, Opinion | April 20, 2020 By:

U.S. central bank money has seen little innovation since the introduction of paper currencies and cashless transfers in the nineteenth century. As the world has become more digital, the dollar has remained analogue, but has continued its longstanding status as the world’s reserve currency.

The Digital Dollar Project (DDP), a collaboration with the Digital Dollar Foundation, founded by J. Christopher Giancarlo, former Chair of the CFTC, aims to advance and encourage exploration of what could be the next major innovation in U.S. currency.

The DDP is exploring the idea of a “digital dollar,” or central bank digital currency that is issued by the Federal Reserve. This digital dollar would represent a third form of money in the U.S. – the first tokenized form of legal tender that would have the same confidence and clarity as the paper dollars in your wallet. By digitizing the U.S. dollar, this would enhance scope, access, diversification and resilience in dollar payments and support retail, wholesale and international payment use-cases.

At the surface, the new notion of a U.S. “digital dollar” in more recent headlines and the concept of a tokenized U.S. Central Bank Digital Currency (CBDC), the goal of the DDP, may seem one in the same but these are two very different visions. 

Last month, U.S. Senator Sherrod Brown’s ‘Banking for All Act’ mentioned a digital dollar, but it had a different goal – to meet the needs of the Coronavirus Aid, Relief, and Economic Security (CARES) Act by distributing electronic payments directly to consumers within the current financial infrastructure. That is a herculean challenge to overcome in the short term given 18 million U.S. citizens are currently without a bank account and the need to assure funds get into the hands of the intended recipients illustrates a broader digital identity verification dilemma that cannot be solved overnight. 

In time, a Digital Dollar along with digital identity and wallet solutions could indeed improve the ability to distribute money to the public and small businesses as required.  However, this means of distribution has no impact on evolving or improving the current financial system, while the DDP’s primary goal with a CBDC is to increase the functionality of the U.S. dollar as a global reserve currency. 

There is, however, great risk in moving too fast – we need to make sure we are thoughtful about the processes and standards put in place to get this right. The best way to modernize our financial infrastructure and proceed toward the goal of a digital dollar is to collaborate with the greatest minds in the industry on policy and design choices at a slow and steady, deliberate pace. 

True central bank digital currencies could fundamentally change the nature of our global financial systems, enabling frictionless movement of money, the direct exchange of digital goods and services and it has the potential to bridge the gap of the greater financial inclusion and fairness issues today.