Digital Dollar Looms, But so Do Questions

It seems the digital dollar may be on the way — the jury’s out, though, as to whether we might really need a central bank digital currency (CBDC) here in the United States.

As has been widely reported, President Joe Biden is close to signing an executive order, as soon as Wednesday (March 9) that will set comprehensive regulatory guardrails around cryptocurrencies. And the order will also mandate that the government study the merits of issuing a CBDC.

That order would come on the heels of the Federal Reserve Board’s own exploration of the issue, where its white paper, “Money and Payments: The U.S. Dollar in the Age of Digital Transformation,” offered no concrete recommendations and said that any real development of the CBDC would need support from the White House and Congress.

Read also: CBDC in the US Will Take Years, but Some Benefits May Come Earlier

This time around, per the Biden order, various federal agencies will be tasked with studying the pros and cons of the digital dollar and issuing reports over the next several months. At least some of the way has already been paved by the Fed, which said in its own explorations that it is indeed, at least technically, possible to launch a wholly-digital version of fiat.

But as to the “why we need it”…

… consider the fact that this time around, the various agencies that will reportedly study the issue will include the Treasury Department, Office of Management and Budget, the Justice Department, Commerce Department, Department of Homeland Security and others.

The fact sheet issued Wednesday by the White House notes that the combined efforts of all these stakeholders will determine whether a CBDC would be “deemed in the national interest.”

Determining the ‘National Interest’ 

Now, there are several ways to determine what might be in the national interest. As of this writing, the world is mired in geopolitical conflict that spotlights how and whether money can be laundered and used to fund terrorist activities or other aggression. In addition, China is leagues ahead of other large, economically developed nations when it comes to issuing digital currencies. At least some observers worry about possible challenges to the dollar’s dominance as the reserve currency across the globe.

The smaller nations that have adopted digital currencies so far may be doing so in order to displace cash, and by extension bring in more tax revenue and stem illicit activities.

But in the U.S., cash use is dwindling rapidly and at last reading by the Federal Reserve stood at less than 20% of transactions.

This implies that by and large, domestic consumers and businesses are using “digital forms” of the dollar to conduct daily financial life. The real-time rails that are emerging in the U.S. are making it possible to more speedily disburse (and receive) all manner of payments — including, say, aid and mass payouts, without disintermediating the banks that have served domestic and international transactions for, well, hundreds of years.

The extant systems and practices beg the question of how the Fed and the government, over their own rails. would set things up to mimic those aforementioned payouts.

A noted by Karen Webster in a recent column, it may be that CBDC accounts would have to be set up to let consumers receive digital dollar payments, but merchant acceptance will be key. Otherwise, they’d have to transfer their digital dollars to bank accounts (that already exist at banks!) in order to facilitate commerce.

“That sounds like a lot of make-work simply to enable a CBDC that a consumer may or may not want to use as a payment tender at a merchant that already accepts the digital payments that consumers currently have, like and use,” wrote Webster.

So: It may be the that the digital dollar explorations — among the various government agencies, as mandated by the president — tick the boxes of who, what, when, where, how … but there’ll need to be a rock-solid case on the “why.”

Read also: The Three Most Important Questions for the Fed on Its CBDC Plans