How new digital currencies can help fight COVID-19
11 June 2020: with the US Congress debating the use of Digital Dollars to help its ‘unbanked’ citizens through coronavirus, could we see Digital Pounds this side of the Atlantic? And where do accountants fit into this new equation? Fintech academic Gavin Brown explains more.
In response to coronavirus, the US government committed to an immediate fiscal stimulus of just under US$2tn in March.
Of this, some US$600bn was used to deliver direct payments to all US citizens. More specifically, each adult who filed a tax return with a salary of less than $75,000 could claim $1,200 to mitigate the impact of coronavirus. Taxpayers were also given $500 per child aged under 16. Payments have been made by cheque bearing the name of The President.
However, approximately 14 million adults (or 6% of all households) in the US have no primary bank account, meaning that such cheque payments are of limited use to this left-behind 'unbanked' or ‘underbanked’ demographic. Moreover, many cheques have been delayed, not to mention the infection risk of physically banking a cheque before waiting for cleared funds to purchase emergency food and provisions.
Enter the idea of Digital Dollars.
Not to be confused with cryptocurrencies such as Bitcoin or a central bank digital currency (CBDC), Digital Dollars are fiat currency which can be held within an account directly at The Federal Reserve by every US citizen. These instant-access accounts, likely non-interest-bearing, might then be accessible from smartphones, for example. If implemented, this would effectively bypass traditional banks and cheques(!), which is especially important when a government needs to get funds quickly to its population.
Digital dollars are to be debated by US Congress on 11 June by The United States House Committee on Financial Services, and you can view the debate here: ‘Inclusive Banking During a Pandemic: Using Fed Accounts and Digital Tools to Improve Delivery of Stimulus Payments’.
Nonetheless, leading voices such as Professor Raskin of NYU have cautioned that such digital fiat currency may give the state too much control over our money, explaining that “the government that gives can also take”. Others have cautioned policymakers not to rush such an important monetary innovation.
Digital Pounds on the horizon?
So, could we see Digital Pounds or Digital Euros this side of the pond one day soon? Perhaps. Indeed, The Bank of England published a discussion paper on this possibility back in March 2020.
The idea is readily translatable to other countries, enabling each citizen to hold a bank account with their respective central bank. This system would enable fast, targeted payments to be made instantly from government to these accounts in the event of a pandemic or similar emergency.
Such accounts in the UK would likely use National Insurance numbers for identification purposes, or even registered company numbers if corporates were afforded the same privilege.
The Digital Dollars debate may yield the template for the next generation of fiat currency, which arguably experienced its last incarnation with the removal of the Gold Standard. Digital Dollars are not a new mechanism for money creation but rather for money dissemination and storage.
As accountants, we would need to be able to advise on how to organise, claim, audit, access and transfer such Digital Pounds should they be implemented here in the UK. While this may be some way off, time spent researching the concept is certainly not time wasted.
- Virtual hearing by Congress on Digital Dollars will be streamed live here.
- Bank of England discussion paper published in March 2020 here.
- The Bank of England FinTech Research Hub
- The ICAEW Technology Faculty
- Press release by The Bank of England explaining Central Bank Digital Currencies and digital currency research by The Bank of International Settlements and other central banks in January 2020 here.
Previous ICAEW articles on this topic by Gavin Brown: