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Central Bank Digital Currencies (CBDCs), An Increasingly Prominent Topic Throughout The Last Year Within Crypto And Beyond, Have Now Entered The Discussion Surrounding The Response To The COVID-19 Crisis In The US Via Two Draft Bills - Both Seeking The Creation Of A ‘Digital Dollar’
On Tuesday, Democrats introduced a draft bill concerning ‘emergency supplemental appropriations’ in the context of the COVID-19 outbreak in the US. The bill, which outlined economic and other measures, also introduced a ‘digital dollar’ with the aim of sending funds more directly to those affected by the virus. The bill, which did not mention cryptocurrencies or blockchain, defined the digital dollar as a balance of USD recorded on digital ledger entries in the accounts of any Federal Reserve bank. A later version of the bill, introduced yesterday, removed any references to a ‘digital dollar.’ However, just as the ‘digital dollar’ was tossed, a new draft bill was introduced by Democratic Sen. Sherrad Brown, which used the language of the previous bill to again call for a digital dollar. Brown, a fierce critic of Libra, has coupled his proposition to COVID-19 relief efforts in that the Senator envisions a digital dollar serving the 8.4M American households who do not have bank accounts but need to access relief funds.
Crypto Takeaway: It was only in December 2019 that Treasury Secretary Steven Mnuchin said that the Fed saw no need to issue a digital currency in the next 5 years. Furthermore, in a November 2019 letter Fed Chairman Jerome Powell said his institution was analyzing ‘the costs and benefits of pursuing such an initiative…’ but that it was not working on digital currency.
Yet this crisis seems to threaten to reverse these positions. Brown’s digital dollar aims to bring relief funds more directly to beneficiaries using lower-cost digital solutions, bypassing some of the established channels.
Crypto, from its inception, has maintained several mantras, one of which is ‘banking the unbanked’ via the lowering of costs of financial services through disintermediation and digitization. We discussed yesterday that the COVID-19 crisis has seen extremes in quantitative easing discussion and central bank balance expansion, giving crypto proponents the opportunity to highlight the space’s resistance to the potential overreach of such measures. While CBDCs lack (and at times contradict) many features of crypto, their formal debate among policymakers draws light to the few beneficial features they share.