The Overton Window Opens for a Digital Dollar

Legislation introduced to the U.S. Congress this week signals that the Overton Window – a metric of what’s politically feasible – is opening in favor of national digital currencies. 

While it’s unlikely we’ll see a digital dollar any time soon, the coronavirus crisis may help precipitate adoption of novel forms of money, members of the cryptocurrency industry and other observers say. 

The legislation comes about as U.S. officials look for ways to get much-needed cash into American pockets. According to a Senate bill, using a central bank digital currency (CBDC*), the federal government could send direct payments to citizen’s wallets held by the Federal Reserve, called FedWallets.

While the proposed bills lack detail, and at least one has been scrubbed of reference to this new payment mechanism, many in the crypto community see this as validation of both as an asset class and a set of ideas about the future of the financial system.  

See also: Why the U.S.’ $2 Trillion Stimulus, Unlimited QE Will Expose the Monetary System’s Flaws

“[T]his is not the last we’ll see of the digital dollar movement,” Lawson Baker, founder of Relayzero, a cryptocurrency investment and advisory firm, said in direct message. 

The dollar is the United States’ greatest export, and any technologist or financier would want to be a part of its next phase of existence, Baker said. “Favors. Pork. You name it. Everyone wants in to the digitization of the dollar payday.”

Whether introduced out of sheer desperation, as a genuine attempt to utilize instantaneous and transparent payment technologies, or as “bill padding,” as Mati Greenspan, a digital asset researcher wrote, CBDCs are rising up the mainstream agenda. In a few short days, CBDCs have gone from being fringe to getting support from senators like Sherrod Brown (D-Ohio), who has proposed digitizing the existing currency and keeping accounts for the public at the Fed. 


Catherine Coley at Invest: NYC 2019 via CoinDesk archives
Catherine Coley is a proponent of the greenback’s digitization. Photo taken at Invest: NYC 2019.

This centralized version of sovereign national currency likely has the widest support in establishment circles, with backers like Ex-Commodity Futures Trading Commission (CFTC) Chairman Chris Giancarlo gathering support through his Digital Dollar Project. At the same time, Facebook and other private entities are also co-opting and sometimes improving on the work of Satoshi Nakamoto. 

“We are becoming resourceful in looking at existing technology – and at the flaws in the current system – and applying them to future and current needs,” said Catherine Coley, CEO of Binance.US. 

See also: US Senate Floats ‘Digital Dollar’ Bill After House Scrubs Term From Coronavirus Relief Plan

Coley wrote an op-ed last weekend urging Congress to consider blockchain-based stablecoins as a way to payout a direct stimulus. It would save money and reduce contagion risks, she argued. However, the current drafts make no mention of a digital dollar being maintained on a decentralized ledger.

“I’m not going to say I prefer one way or the other as long as we’re rapidly moving towards this solution,” Coley said. “Any progress on this matter is a win for everyone. The faster we can get funds into the hands of those that need financial support at this time is crucial.” 

Coley’s arguments for digitizing cash payments are pragmatic. There isn’t scientific consensus yet on how COVID-19 spreads, and mailing physical checks to home addresses may negligently expose people to the virus. 

See also: 4 Reasons Central Banks Should Launch Retail Digital Currencies

Similarly, Coley reasons that the last time the federal government posted rebates in the mail, in 2008, during Henry Paulson’s tenure at Treasury, many people without stable residences were excluded. 

“If the stimulus were delivered via digital assets, every American with internet access, a Social Security number and proof of address could have the ability to access their stimulus,” she wrote. “This [hygienic] distribution would provide a variety of ways for people to get access to cash,” she said. 

Libra Move

One possible impetus for the government’s examination of digital currencies during this crisis is the much-mistrusted Libra project, spearheaded by Facebook, but moving to decentralize. Coley said “Libra is perfectly positioned to provide something like this,” but, if up and running, would require everyone to get a Facebook account. 

“Are you going to force everyone to open up an account on exchange? The answer is no, but there is an option now for people that are not near their mailboxes,” she said.

As it stands, digital dollars would be paid to wallets maintained by the Federal Reserve. These payments wouldn’t be able to circulate widely throughout the economy, but people would be able to transfer them to their bank accounts and use later as they see fit.

Even such a scaled back approach “would be a first step towards crypto technologies being widely adopted” Kristin Smith, executive director of the Blockchain Association, a Washington D.C. lobbying firm, said. 

People could [grow to] understand that they can have full access to their financial lives.

“Through dollar-backed stablecoins, people could [grow to] understand that they can have full access to their financial lives,” through other digital assets, she said. 

But not everyone takes such a rosy view of this solution. Daniel Gorfine, CEO of Gattaca Horizons, a fintech advisory firm, said the current crisis is forcing consideration of how existing technologies can expedite the deployment of money. But he cautioned against moving too quickly.

“Implementing a true CBDC is a really large undertaking. It needs to be done with a lot of care and will involve important questions, design choices and trade-offs,” Gorfine said over the phone. 

“While jumpstarting pilots and trials could make sense, I caution whether now is the right time to do something as full blown as broadly implementing a dollar-backed digital currency,” he said. “I think it’s really important that this doesn’t cause any delays in getting emergency funding to needy businesses and individuals through existing channels.” 


Daniel Gorfine
“Implementing a true CBDC is a really large undertaking. It needs to be done with a lot of care and will involve important questions, design choices and trade-offs,” former chief innovation officer at the U.S. Commodity Futures Trading Commission Daniel Gorfine said.

Gorfine, also the former chief innovation officer at the U.S. Commodity Futures Trading Commission (CFTC), proposed a “digital dollar” along with former CFTC chairman J. Christopher Giancarlo. 

“There’s a difference in my mind between doing meaningful pilots versus a whole scale implementation,” he said. “It seems to me to be something that will take months, if not, years of thoughtful planning.”

Eric Turner, a crypto data researcher at Messari, agreed. “[CBDCs] aren’t a question of if, but when.” A dollar stimulus airdrop is the perfect test application. “But we are at least a year away from the U.S. building such a system,” he said. 

If rushed, the procedure could likely do more harm than good, said Josh Lawler, a partner of Zuber Lawler, who specializes in crypto and securities law. “The virus situation points to the use case for quick, direct payments of this nature, but it will take more than five days to figure out a way to implement it and not end up in disaster,” he said. 

See also: Policymakers Shouldn’t Fear Digital Money: So Far It’s Maintaining the Dollar’s Status

Lawler thinks the current proposals have  conceptual flaws “that would drag us in the wrong direction.”

“Those that need it most are the ones that are unlikely to have or know how to use wallets,” he said. Additionally, a digital dollar could be a means of increasing government oversight over personal  transactions. 

“There are huge security concerns. The Fourth Amendment is at stake here,” Lawson Baker said. Earlier that day Baker tweeted, “Digital Dollar Fed Accounts for consumers [are] worse than the Bank Secrecy Act. Why? Because now the Fed will have direct access to all of your financial transactions AND direct control over the ledger.” 

He reasoned this would lead to asset seizure without warrants. 

While there are flaws with a bill so quickly introduced, Baker sees the moment as a calling for the crypto industry to rise to the occasion and move its agenda forward. 

“This will resonate with people. They’ll understand what a digital dollar means. Even if [Congress] had to pull it back and say, ‘we don’t want people connecting the dots,’” said Coley. “It means they already know what true digital assets are and therefore are afraid people would connect more dots.”

* Definitions of CBDCs vary from digital ledger entries at a central banks to systems necessarily with cryptocurrency design aspects.

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