The Digital Dollar’s future in-making

 

Nothing accelerates change as much as a crisis. When our world’s systems crash, we often change the way we think, spend, live, and work. In 2008, the Great Recession and growing doubts about traditional banking structures led to the emergence of Bitcoin, revolutionizing a global approach to money. COVID-19 has already turned our lives upside-down, and many speculate that it might act as the ultimate agent of change. Before the pandemic, paper money’s glory days were already long over, but the virus has only speeded up the inevitable, bringing cash one step closer to social retirement. Due to fear of the virus, people have started to opt for digital payment more often, once again sparking up a debate about the making of the world’s financial revolution. While Bitcoin’s decentralized, independent nature is appealing to many, numerous people object to payment methods which are managed by no government at all, deeming them not trustworthy. Currency is more than just a medium of financial exchange, it is a country’s economic and political power, which is exactly why various countries around the world are developing their own digital currencies. As China is in the final stages of issuing its own digital Yuan, the entire world is waiting for the United State’s response. Is the Digital Dollar a future in-the-making, or is it barely an idea in the government’s waiting room?

The Digital Dollar’s creation has been discussed for quite a while, but with no significant results. Ever since Facebook announced the development of its own digital currency, Libra, central banks around the world have given more thought to creating national digital currencies. In the United States, the issue of Digital Dollar was put aside, until COVID-19 forced government officials to rethink the efficiency of traditional payment systems. As the country has been devastated by the virus’ economy-killing power and millions of Americans need immediate financial aid, House Democrats proposed the development of the U.S. Digital Dollar to quickly transfer money to citizens in need. They envisioned The Digital Dollar as a representation of paper dollar, which could be directly transferred to Americans’ digital wallets, eliminating the need for waiting or the presence of a third-party intermediary. The Digital Dollar would be a sort of “FedAccount”, which could be accessed at no cost whatsoever through local post offices, banks, ATMs, and, most importantly, online. The plan was ambitious, but it was eventually dropped. In the Blockchain Insider Podcast, Richard Crook, Director at Lab 577, explained that it was a natural turn of events, saying that in the times of the crisis “you go with what you have, not what you need”. The lack of necessary digital architecture ultimately worked against the Democrats’ proposal, but Richard is positive that The Digital Dollar’s development is inevitable, stating that “it is not really, now, a conversation around ‘if’ we get a digital dollar, it’s now just a matter of ‘when’.”

Why was The Digital Dollar proposed as an effective alternative for traditional financial structures during the pandemic? Reasons are numerous: in times of crisis, the speed of reaction is extremely important. People, who just lost their jobs and have no income, cannot wait weeks or even days for their checks: they need immediate help. According to the Report on the Economic Well-Being of U.S. Households in 2017, 40% of American adults were not able to pay for an unexpected expense of $400, and more than 1 out of 5 were unable to fully cover their monthly expenses. In the light of such statistics, The Digital Dollar’s direct peer-to-peer money transfer system is an enormous advantage. Another argument for The Digital Dollar’s immediate development was that not every American has a bank account and cannot, therefore, easily access emergency money. In 2017 only 5% of American adults did not have an active bank account, but numbers differed across different ethnic groups. 10% of all Afro-Americans and Hispanics did not use bank services in 2017. A digital wallet, automatically given to every American, would solve the problem of potential financial exclusion. People would be able to manage their tax returns, loans, subsidies, and federal grants without a bank account, which definitely improves the speed of transactions.

How would The Digital Dollar differ from Bitcoin? Well, both Bitcoin and The Digital Dollar would be likely to operate on the peer-to-peer basis, but the similarities would end there. Bitcoin was designed to be decentralized and independent of governments, while The Digital Dollar would simply be a virtual extension of a paper dollar. Since it would be issued by the American government, it would always be affected by the country’s economic and political conditions, and would be more prone to inflation than Bitcoin. In addition, Bitcoin operates anonymously, displaying wallets’ addresses, but not a wallet owner’s personal information. The Digital Dollar wallet would likely be linked to one’s tax identification number, so it would not operate on the same anonymous basis as Bitcoin. Since The Digital Dollar would be issued by the US government, it would be globally recognized as a currency, unlike Bitcoin, which is considered neither a currency nor a legal tender. Moreover, in certain countries Bitcoin is either deemed illegal or is subject to a banking ban, making its legal status complicated. Given that The Digital Dollar would be simply a paper dollar’s digital extension, its legality would be clear and easily determined, which is an enormous advantage in the financial world. All in all, both Bitcoin and The Digital Dollar’s nature and purposes are very different, and the likelihood of Bitcoin replacing the dollar as America’s preferred means of payment is very low. Nevertheless, a failure to develop a national digital currency could impact US international policies, weakening the power of the dollar in favor of other currencies. The idea of The Digital Euro has been accepted by France and The Netherlands, and Japan is allegedly considering a digital Yen. The refusal to embrace future solutions could potentially ruin the dollar’s global dominance, so experts agree that The Digital Dollar’s emergence is just a matter of time.

To better understand The Digital Dollar, we asked Sergey Sevantsyan, an expert in Blockchain, a business developer, and an International Public Keynote Speaker with over 250 appearances to his name, to share his take on the American digital currency. When questioned about possible technological solutions for The Digital Dollar, Sergey said that “it has no chances to be deployed on the blockchain”, and he added that whatever technology will be used, “it should be very secure, scalable and faster than any existing one - we have that one, based on post-quantum technology - Cellframe.” In his view, creating the necessary infrastructure for the Digital Dollar would not be too expensive, as “nowadays issuing any token costs a penny, and it could be done by any advanced user.” He does not find it a cure for a predicted, upcoming economic crash, stating that “only collapse of the current fiat monetary system could wake up our approach to the alternative economic model”. Is The Digital Dollar’s potential popularity a given? Sergey thinks so, explaining that “we will only take off the paper currency - that’s all. We use it in our everyday lives via smartphones, cards, online payments. It’s going to be just another wallet.” While many people wonder if the currency’s digitalization could benefit businesses, our expert has no doubt: “everything will migrate to the online world without any human interference at all, finally, eliminating banks as institutes of money management. It will work automatically - we need the world without intermediaries.”

All things considered, The Digital Dollar may still be a work in progress, but it has definitely moved up from the realm of modern dreams to the realm of promising projects. China’s ambitious digital currency plans, the new economic reality created by the pandemic, and developing technologies, all bring us closer to the American financial revolution. Whatever is in store, the dollar’s global power should not be underestimated regardless of China’s potential digital victory: over 60% of all foreign exchange reserves in central banks are held in U.S. dollars, so globally, in the dollar, we still trust.

 

Sources:
1. https://bi.11fs.com/144
2. Report on the Economic Well-Being of U.S. Households in 2017
3. https://www.atlanticcouncil.org/blogs/new-atlanticist/digitizing-the-dol...
4. https://www.investing.com/analysis/digital-dollar-200522077
5. https://medium.com/@chrisjpmitchell/understanding-the-u-s-digital-dollar... ld-be-used-and-what-it-could-mean-for-you-da9b6e66f58f
6. https://www.ledgerinsights.com/digital-dollar-congress-covid-19-stimulus...
7. https://venturebeat.com/2020/04/18/a-digital-dollar-why-how-and-why-now/

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