Digital Dollar? Get Real, Financial Inclusion Advocates Tell Congress

Currently just a flashy idea, the digital dollar is competing with more prosaic but proven 20th-century methods for the job of getting stimulus funds to every U.S. resident.

That’s the takeaway from Thursday’s House Financial Services Committee (FSC) hearing, where witnesses advocated different solutions to the problem.

Making the case for an electronic greenback was J. Christopher Giancarlo, former chairman of the Commodity Futures Trading Commission (CFTC), now a director with the Digital Dollar Project. 

As he has in the past, he argued tokenization is a way to future-proof the dollar. Other countries, including China, are working to digitize their currencies, he noted. If the U.S. wants to maintain its leadership role in the global financial system, it too should take on this task, he told lawmakers.

While Giancarlo previously cautioned a digital dollar should not be “cobbled together” during a crisis, he suggested at the hearing that laying the groundwork should be part of the response to the downturn caused by COVID-19.

“Nothing reveals the limits of our accounts-based financial system more strongly than the current COVID-19 pandemic, when tens of millions of Americans are waiting a month or more to receive payments by paperchecks,” he said. 

“We need to start exploring the next level of technology side by side with the existing accounts-based technology, if for nothing else to build greater redundancies in the system but also greater optionality and more tools in our toolbox to use in crises like this,” he added.  

But other witnesses kept the focus on the urgency of making stimulus payments quickly to those in need. One round of paper checks has gone out to individuals who filed taxes in the last two years, but many are still waiting for their stimulus dollars.  

“The point I just wanted to drive home [is] we are still in the midst of a crisis and [as] others on the panel said really eloquently, people are suffering today,” said Jodie Kelley, CEO of the Electronic Transactions Association.

“So I wanted to make sure that we recognize the only way to do that is with the tools that we have now,” she said.  

Simpler alternatives

The success of prepaid debit cards and peer-to-peer applications like PayPal and Venmo show they can be used to quickly distribute stimulus dollars to those in need, argued Kelley, whose member companies process more than $8.5 trillion in payments annually. 

“The prepaid debit cards in particular are a preferred way to make payments to lower-income people. They are simple to use and don’t require a mobile phone,” she told CoinDesk after the hearing.

As for using blockchain, Mehrsa Baradaran, a Professor of Law at the University of California Irvine School of Law, said the discussion of that technology is premature.

“How do we get people to meet people where they’re at and make sure our solutions match the problem?” she asked lawmakers. “The problem here is the banking deserts, it’s the unbanked and underbanked, and we have technology to meet those people and I think that’s critical at this juncture.”

Baradaran advocated a different, more feasible strategy (at least technologically, if not politically): using the U.S. Postal Service to create local bank branches in partnership with the Federal Reserve. 

“We need to close this cash-digital divide first,” Baradaran said.

Non-tokenized digital dollars could also be easily set up, said Morgan Ricks, a Professor of Law at Vanderbilt University School of Law. Ricks has long touted the concept of a FedAccount, a bank account essentially offered by the Federal Reserve for consumers to have direct access. 

Setting up FedAccounts should be fairly straightforward and easy to accomplish, he told lawmakers: The Fed already offers these services to banks, large financial institutions and government entities. 

“The Fed itself has been processing real-time instant payments for many many decades through the FedWire system,” he said. “The Fed has been opening accounts on its own books since its inception … retail operations are a different matter.”

The Fed could even contract out certain tasks until it has built up its own internal infrastructure, he said.

‘Starting a journey’

A large portion of the hearing focused on the tokenized dollar concept, with Rep. Patrick McHenry (R-NC) asking Giancarlo to walk him through how it might aid financial inclusion and subsidy distribution.

In the former regulator’s view, a tokenized dollar could be a way to provide banking services to those who lack them. Here, broadband access is the largest issue that would need to be addressed, he said.

A lack of banking access is “not insurmountable,” if residents of areas underserved by financial institutions have broadband access, Giancarlo said.

The digital dollar “is about on-ramps into the financial system, and making them as simple and accessible as possible,” he said. While he acknowledged that access to mobile devices might be another barrier, he said solving this would make the question of financial inclusion much easier.

Focusing on providing mobile access and a tokenized dollar rather than an expansion of existing banking services, might attract more individuals to the new system, he said.

“There are populations…with folks that are just outside the banking system but are comfortable with bearer instruments,” he said.

Prior to the hearing, Digital Dollar Project director and Accenture manager David Treat told CoinDesk he was encouraged the conversation was happening at all.

He said he expected some stakeholders might only be comfortable with incremental changes to the financial system right now.

“I think we’re at an inflection point now where we’re starting on a journey of modernizing money for our digital world and I think we will all benefit if we collectively recognize that [the] journey will have multiple waves of innovation,” Treat said.