U.S. Considering Adopting the 'Digital Dollar'

[Frodo]

Considering how digitized the world of finance has become over the course of the past few decades, it seems only logical we transform the dollar for the 21st century and beyond:

https://twitter.com/NPR/status/1490342370403041286

[PSOL]

Finally, we are soon to be getting worthwhile digital currency on a national scale.

[Dr. MB]

Awful news. This technological encroachment has to be stopped before it can progress any further.

[KoopaDaQuick 🇵🇸]

Kind of a stretch considering the current state of the USD. American money held digitally, like the balance in my bank account, only have value because I can withdraw said money from my bank and exchange it for Washingtons and Benjamins. Unless we adopt it as a cryptocurrency or find a different way to peg the digital dollar to any actual value, I don't think this would be worth the trouble. Paper currency isn't the worst thing in the world, and while I'm not saying it'll never be phased out, there's no reason to ditch the plus sides it has right now in the year of our Lord 2022, especially as there's no good reason to ditch it in the first place.

[Del Tachi]

Good idea.  As more payments move online, we need a digital currency that offers the same level of protection and liquidity as commercial bank money.  Nonbank money (i.e., balances in CashApp, Venmo, Apple Pay, etc.) doesn't offer the same level of protection because no real "money" is being exchanged peer-to-peer (i.e., the transactions are settled on the firm's own books.)  There's risk to the whole economy in shifting more and more assets to unbacked, non-bank accounts.   

The challenge with digital money is that cash transactions are direct, meaning the Federal Reserve would either have to authorize direct accounts for individuals or somehow get private banks to cooperate and facilitate transfers in which they have no stake/liability.  But if you make banks the intermediaries then it's no longer cash in any meaningful sense. 

[Del Tachi]

The more I think about this the less sense it makes, lol.  Maybe I'm being dense...but if you have central bank money directly available to individuals in a digital format then what is the rationale for deposits?  how would new money be created?

[StateBoiler]

The more I think about this the less sense it makes, lol.  Maybe I'm being dense...but if you have central bank money directly available to individuals in a digital format then what is the rationale for deposits?  how would new money be created?

They do what they do now. Hit a couple buttons on a computer increasing the money supply by 10%, which in the long run reduces the value of all existing dollars in accounts by 11.1%.

[Associate Justice PiT]

     Pretty redundant. US Dollar Coin already exists as a digital currency backed one-to-one by real US Dollars. It seems like our government is being struck by FOMO.

[Del Tachi]

The more I think about this the less sense it makes, lol.  Maybe I'm being dense...but if you have central bank money directly available to individuals in a digital format then what is the rationale for deposits?  how would new money be created?

They do what they do now. Hit a couple buttons on a computer increasing the money supply by 10%, which in the long run reduces the value of all existing dollars in accounts by 11.1%.

Not quite.  The Federal Reserve does issue new paper currency and coins, but that is only a small portion of the total amount of money in circulation.  Something like 80-90% of all M1 money is the U.S. is typically held as deposits in commercial banks, and this money forms the basis of our fractional-reserve system that allows money to be created every time a loan new is issued.

If there's a cash-equivalent digital currency available directly from the central bank, there's no reason for people to hold their money as deposits which means less money for banks to lend out as mortgages, loans, etc.  That reduces the total amount of money in circulation.

[StateBoiler]

The more I think about this the less sense it makes, lol.  Maybe I'm being dense...but if you have central bank money directly available to individuals in a digital format then what is the rationale for deposits?  how would new money be created?

They do what they do now. Hit a couple buttons on a computer increasing the money supply by 10%, which in the long run reduces the value of all existing dollars in accounts by 11.1%.

Not quite.  The Federal Reserve does issue new paper currency and coins, but that is only a small portion of the total amount of money in circulation.  Something like 80-90% of all M1 money is the U.S. is typically held as deposits in commercial banks, and this money forms the basis of our fractional-reserve system that allows money to be created every time a loan new is issued.

If there's a cash-equivalent digital currency available directly from the central bank, there's no reason for people to hold their money as deposits which means less money for banks to lend out as mortgages, loans, etc.  That reduces the total amount of money in circulation.

Just about the only reason bank accounts exist now for Random Consumer is direct deposit. It's not like they're paying you anything in interest, haven't for years.

[Starry Eyed Jagaloon]

The more I think about this the less sense it makes, lol.  Maybe I'm being dense...but if you have central bank money directly available to individuals in a digital format then what is the rationale for deposits?  how would new money be created?

They do what they do now. Hit a couple buttons on a computer increasing the money supply by 10%, which in the long run reduces the value of all existing dollars in accounts by 11.1%.

Not quite.  The Federal Reserve does issue new paper currency and coins, but that is only a small portion of the total amount of money in circulation.  Something like 80-90% of all M1 money is the U.S. is typically held as deposits in commercial banks, and this money forms the basis of our fractional-reserve system that allows money to be created every time a loan new is issued.

If there's a cash-equivalent digital currency available directly from the central bank, there's no reason for people to hold their money as deposits which means less money for banks to lend out as mortgages, loans, etc.  That reduces the total amount of money in circulation.

I was just thinking about this today. Anyway, I would think the amount of digital cash held in digital "wallets" could be capped, forcing people into the financial system. New currency could just not ever be added to these wallets, so inflation erodes their value without putting cash into a bank account. Either way, the solution is just to make keeping all your net worth in a digital wallet less convenient as putting the bulk of it in a bank, much like how banks today rely entirely on people being inconvenienced enough by the process of holding large amounts of physical cash.

[Frodo]

Biden administration to study whether US should issue a cryptocurrency
Biden signed executive order directing agencies to study potential of creating U.S. central bank digital currency

[Antonio the Sixth]

I don't get it. Isn't the dollar already "digital" in the sense that it isn't backed by any physical good but its value is set as a product of a considerable amount of transactions, most of which are already purely digital? Like, every time banks exchange dollars for a financial transaction, or a stockbroker buys or sells some financial asset using dollars, there aren't literal, physical bags of dollar bills being moved around to make that transaction possible. How would a "digital dollar" be any different from that?

[Okay, maybe Mike Johnson is a competent parliamentarian.]

I don't get it. Isn't the dollar already "digital" in the sense that it isn't backed by any physical good but its value is set as a product of a considerable amount of transactions, most of which are already purely digital? Like, every time banks exchange dollars for a financial transaction, or a stockbroker buys or sells some financial asset using dollars, there aren't literal, physical bags of dollar bills being moved around to make that transaction possible. How would a "digital dollar" be any different from that?

Progress! Forward! To the Future!

It's difficult for people our age to understand, I think, just how very much older policymakers are still unjaded, or un-unimpressed maybe, by the idea of "e-" and "i-" everything. Britain's culture ministry has "Digital", as an uncountable mass noun, as the first word in its full name now. Old people tend not to like "tech" very much, but they also tend not to understand it and thus often see it as this mysterious and powerful force that will fix, change, or solve everything.

Personally, I tend to think our society is too cashless as it is already, but I'm well aware that this is an extreme position in the opposite direction.

[Meclazine for Israel]

US to consider zero cent coin.



They sold out quickly on Amazon.

[buffalobillsfan4444life]

If a central digital currency bans paper currency, we're screwed as a planet and democracy will be no more.

[buffalobillsfan4444life]

government will be able to control whatever about you they want with this digital dollar

[pbrower2a]

The more I think about this the less sense it makes, lol.  Maybe I'm being dense...but if you have central bank money directly available to individuals in a digital format then what is the rationale for deposits?  how would new money be created?

I am on disability, and part of my disability payment is SNAP. I do not get cash or a cash-equivalent for food. I rarely use cash for foodstuffs in a grocery store. By staying away from junk I can eat well.

No money changes hands directly when I purchase oranges, raisin bran, or a box of a single-serving lasagna. Money goes to such an entity as Meijer, Wal-Mart, Aldi, Dollar General, or more rarely Kroger, Spartan-Nash, Target, or Trader Joe's.

I expect that people will be expected to budget their payments or set up lay-away for big purchases. Use your allotment and you can't buy anything until you get the next allotment.

One thing that I have noticed about new technologies is that people basically do what they used to do, only with different devices that work a bit better, use less material, or take up less space. To be sure, some questionable transactions will be difficult to perform. Most of our hearts will not bleed if people are unable to exchange digital bits for heroin.  Maybe that is part of the idea.