By Ray Birch
ST. PETERSBURG, Fla.—Will one of the lasting changes from the coronavirus pandemic finally be the end of cash and checks?
Predictions around the so-called “cashless society” go back as far as the creation of the first plastic cards, and provisions initially inserted in a just-passed piece of legislation may bring all the talk closer to reality.
House Democrats inserted language in the draft of the $2-trillion CARES Act that called for creation of a U.S. digital dollar, based on blockchain, and a digital wallet. The language did not make it into the final bill.
The digital dollar was being proposed in the legislation as a means to more easily distribute stimulus checks to Americans, and especially for reaching the unbanked. PSCU Chief Growth Officer Brian Scott told CUtoday.info it is often just such government regulation that leads to breakthroughs.
“Sometimes, in times like these—crunch-times and emergencies—is where the most innovation happens,” said Scott, adding that whether the proposal made the final bill or not would not preempt the idea of a U.S. digital dollar from being pursued in the near future. “Financial services can either go much faster or much slower with government regulation. Look at simple things like governments in Europe—Denmark and Sweden—when they outlawed checks years ago, that created all kinds of innovation around payments. It took a government regulation for that to happen.”
Scott pointed out government mandates in Europe led to chip-and-pin technology.
“That prompted Europe to go to EMV long before the U.S.,” said Scott.
Defining the Terms
According to Forbes, the House bill sought to establish a digital dollar, which it defined as “a balance expressed as a dollar value consisting of digital ledger entries that are recorded as liabilities in the accounts of any Federal Reserve Bank or ... an electronic unit of value, redeemable by an eligible financial institution (as determined by the Board of Governors of the Federal Reserve System).”
The language in the bill further defined a digital dollar wallet as “a digital wallet or account, maintained by a Federal Reserve Bank on behalf of any person, that represents holdings in an electronic device or service that is used to store digital dollars that may be tied to a digital or physical identity.”
The mandate would have further required “member banks” establish a “pass-through digital dollar wallet” to all customers eligible for the stimulus. Member banks include those banks that are members of the Federal Reserve and regulated by the Fed. Additionally, “non-member” state banks—those that are not members of the Federal Reserve and regulated by the FDIC—could opt-in to offer pass-through digital dollar wallets as well.
Under the proposed language, the Federal Reserve banks were also to make available a digital dollar wallet to any U.S. person eligible for the payments, while the U.S. Postal Service would aim to help unbanked individuals and/or those without proper ID to establish their identity and be provided a digital dollar account. Those consumers would have used ATMs to access their funds under the proposal, Forbes reported.
Language Not Included
Scott noted the final version of the CARES Act does include the digital dollar language.
Brian Scott
“But that language is still in the House Financial Services Committee and it’s still the exact language, so it is clear the government is thinking about this,” said Scott. “If the government regulated something like this, this could dramatically change financial services. The idea that a central bank would establish a digital currency around blockchain is interesting. First, there are about 63-million unbanked people in the U.S. With this idea they’d have a way to get direct access to financial services through the federal government. And think about every payment the government makes, whether it be tax returns, payments like the $1,200 stimulus checks…this becomes very interesting.”
Scott does not foresee a U.S. digital dollar affecting card transactions and stealing interchange revenue, but he does see it affecting P2P services, money transfers and remittances.
“I see this stepping in for many P2P technologies like Zelle,” said Scott. “This would create a different methodology for P2P and cross-border payments. Now, all of a sudden, these payments are using a cryptocurrency like Bitcoin. I think this would be really interesting, if it comes to pass, and then the government would allow its use for more than just government payments.”
A Good Idea
Scott believes it is a good idea, certainly, as a means to reach the unbanked and those who are transient and don’t have a permanent address with stimulus money.
“I think there will be a lot of people who don’t get their money if paper checks are mailed out,” he said.
Where the big effect will be felt if the U.S. digital dollar comes to pass and usage of the e-coin eventually extends beyond government payments, suggested Scott, will be on cash and check usage.
“This serves a market segment that’s using cash and checks today,” said Scott. “I don't think it impacts the card payments. I think card payments would remain largely unchanged if something like this happened. But I think it impacts transactions made today via cash and check. Will cash ever go away? Some people will likely always use it, but this would be a good kick in the pants in that direction.”