- A digital dollar could be closer than we think, according to the President and CEO of the Federal Reserve Bank of Cleveland
- Loretta Mester raised the suggestion of a CBDC as a payment method for a second coronavirus payout
- A former Federal Reserve department head has also called the first handout “too clunky”
A digital dollar could be created and distributed to American citizens as part of a second coronavirus stimulus package. In a keynote speech to the Chicago Payments Symposium yesterday, Loretta Mester, President and CEO of the Federal Reserve Bank of Cleveland, discussed the proposal of a system to create a digital wallet for each U.S. citizen with the Federal Reserve where digital payments are sent, starting with a second coronavirus stimulus payment.
First Handout “Too Clunky”
The suggestion of a digital dollar was first seriously put forward in March in the wake of the initial wave of the coronavirus, when the idea of sending cash to struggling American families was being mooted. Despite being tabled in two bills at the time, the idea was scrapped in favor of payment through traditional channels.
The issuing of the first stimulus cheque was not seen as a complete success however, with Simon Potter, the former head of the Federal Reserve Bank of New York’s markets group, telling Bloomberg recently that “it took Congress too long to get money to people”, that the mechanism was “too clunky” and that a “new infrastructure” is needed.
Digital Dollar Concept Resurrected
Enter the digital dollar, or Central Bank Digital Currency (CBDC). After being abandoned in March, the concept seems to be in favor again, with Mester raising the prospect in her keynote speech:
Legislation has proposed that each American have an account at the Fed in which digital dollars could be deposited, as liabilities of the Federal Reserve Banks, which could be used for emergency payments. Other proposals would create a new payments instrument, digital cash, which would be just like the physical currency issued by central banks today, but in a digital form…
Of course there is no suggestion that a digital dollar is suddenly the solution desired by all, with Mester adding that “a range of potential risks and policy issues surrounding central bank digital currency need to be better understood, and the costs and benefits evaluated.”
However, the ongoing coronavirus pandemic could just be the opportunity that supporters are looking for in order to get through some emergency funding and push development of a CBDC if not for now then for the near future.