There has been a lot of discussion about the possible launch of a digital US Dollar.
Currently, currency is transferred from party-to-party via financial intermediaries or with cash. As digital US Dollar tokens would be stored in consumers’ digital wallets, transfers with this system could be made directly between 2 parties without the help of a financial intermediary.
It must be noted that the creation of a digital dollar will not replace banks or cash but will become a third form of currency. Under proposed legislation, the US treasury would issue digital dollars tokens as opposed to the Federal Reserve which controls cash and bank transactions. This provides the government more direct control of monetary policy which may or may not be a good thing.
Notably, digital wallets already exist for consumers to use and Apple Wallet is one prominent example. However, Apple Wallets can only be used to store credit and debit cards as opposed to actual currency. So, while digital wallets offer many conveniences, actual payments are still dependent on financial intermediaries. The new digital dollar tokens would be stored either on phones or cards and, if lost, cannot be recovered because they are not based on block chain like crypto currencies.
One reason the government advocates for digital currency is because it would allow them to make emergency transfers (like for covid relief) directly to people without having to wait to mail checks that then must be processed by the banks. This could work especially well for a segment of the population who do not have bank accounts (including migrants). In any case, maybe it is better that the government is not handing out money to Americans, but that is the topic of another discussion.
However, a digital US Dollar does have advantages over cash in that people can pay someone far away (including in another country) instantly and without financial intermediaries. This assumes that all parties have access to the Internet and that the Internet is functioning. A good reason not to rely solely on a digital US Dollar is because of the very real possibility that cyber attacks could cripple the Internet and/or the electrical grid in which case physical cash is very important to keep around.
Privacy concerns must also be addressed when discussing this concept. People that strictly utilize cash like to do so to keep their transactions private. However, a digital dollar cannot exist without attaching a unique identity to each of the digital wallets used (this contrasts with the hidden identities of crypto wallets). Realistically, every credit and debit card transaction is also tracked so there is not a lot of financial privacy for most financial transactions anyway.
In conclusion, while there are numerous benefits of a digital US dollar, there are also substantial risks that must be considered. While this form of currency could provide a useful addition to our existing monetary systems, the digital dollar should not be used to replace them.
