A Digital Dollar May Help the Poor, but It’s Far From a Done Deal

Financial inclusion is one big reason the U.S. should adopt a digital currency, supporters say, but others aren't so sure.

AccessTimeIconMar 30, 2022 at 4:11 p.m. UTC
Updated May 11, 2023 at 3:45 p.m. UTC

Advocates for a digital dollar in the U.S. point to many possible benefits of such a currency, saying it would lead to greater financial inclusion, allow for a more efficient distribution of government benefits and provide a faster and cheaper way to send money overseas.

But the issue of whether to have a digital dollar is far from settled, although it may have received a boost earlier this month when President Joe Biden issued an executive order that asked federal agencies to study the issue.

Pandemic relief

One example of how a digital dollar could have helped occurred when the U.S. government issued stimulus checks as a form of COVID-19 relief. Crypto enthusiasts claimed that instead of issuing checks, an easier and faster way to send the money to people would have been to simply airdrop digital dollars.

A digital dollar could deliver public benefits from the government in a much more efficient manner than the current system, according to Briana Marbury, executive director of the nonprofit Interledger Foundation.

With the COVID relief payments, the government was scrambling to get checks distributed, and in some cases, it didn’t even have the right addresses for people who had moved. In other cases, people weren’t registered with the Internal Revenue Service because their income was below the threshold required to file taxes.

“They were just up in arms and couldn’t figure out how to get these checks out to people in a fast and efficient way and it was just something that was very needed at the time,” Marbury said.

Similar difficulties arose with the $2.2 trillion CARES Act for small- to medium-size businesses and farmers.

With a CBDC, every person would have been issued a digital wallet that would allow them direct access to their funds, avoiding those obstacles, some crypto enthusiasts claimed. In fact, lawmakers had proposed that the Federal Reserve issue a digital dollar in March 2020, but ultimately decided for direct bank deposits.

Financial inclusion

Jim Cunha, an official at the Federal Reserve Bank of Boston, says a digital currency could be one part of a solution to address an issue that’s bigger than just distributing government funds. That issue is including more people in the financial system.

“If you want to help solve financial inclusion, you’d have to have a public policy goal of doing that,” Cunha said. “A new technology by itself is not going to fix financial inclusion, just like it’s not going to fix cross-border."

“One little use case and you can see how CBDC could have some potential, is oversimplifying it," Cunha said. "But it shows you the potential. We just haven't built on that yet.”

In the U.S., roughly 35% of low-income individuals open up bank accounts just to receive government funds. That number includes only those who qualify for opening a bank account, not people who want to, but don’t have the ability, to do so.

Some 7.1 million people, or 5.4% of the population in the U.S., are unbanked, and when including the underbanked to count those who don’t have access to mainstream financial services like credit cards and loans, the number goes up to 14 million.

Many of them are immigrants who send remittances overseas to their home countries, which is often an expensive service.

“They can either send that extra amount to their family and friends back home, thereby increasing their economies or even just being able to put that in their own pockets,” Marbury said. If the Federal Reserve were to issue a central bank digital currency (CBDC), it would probably charge much lower fees on remittances than private companies do, she added.

Sen. Sherrod Brown (D-Ohio), chairman of the Senate Banking, Housing and Urban Affairs Committee, has made a similar point.

“Americans shouldn’t have to pay exorbitant fees just to use the money they’ve already earned … a central bank digital currency can work with these no-fee accounts to make sure working families have access to the payment system and full participation in our economy,” Brown said at committee hearing last September.

How would a digital dollar work?

Some say that while a digital currency could help low-income families and individuals, the details of a digital dollar need to be fleshed out.

“CBDCs could have a great impact on fiscal policy, particularly for those in need,” said Jennifer Lassiter, executive director at the Digital Dollar Project. “But we will not know for sure, to what extent positive or negative impacts CBDCs would have if we do not experiment on specific use cases.”

A report earlier this month from the Brookings Institution written by Tim Massad, a former chairman of the Commodity Futures Trading Commission, and Howell Jackson, a Harvard Law School professor, said that instead of getting the Fed involved, “the Treasury Department could, relatively quickly, create digital accounts to provide payment services that would be especially valuable to unbanked and underbanked individuals.”

Not all agree

There’s no consensus that a digital currency is necessary. Lawmakers and banks have been focusing on the issue of financial inclusion for years, and new products and services that are internet- or phone-based have already led to more financial inclusion, said Scott Talbott, a lobbyist for the Electronic Transactions Association, a group that represents big financial institutions like JPMorgan Chase, Mastercard and PayPal.

Talbott pointed to examples like being able to pay with cash from any location and e-cash, an electronic dollar that is issued by the Treasury Department and has similar characteristics to a CBDC.

Rather than creating a whole new system, it would be more efficient to continue with the current one and make “tweaks” to accommodate the CBDC, he suggested.

“If we're talking about creating a whole new system, where the Fed creates a new rail or a new car or something, that's a lot of effort to try to mimic what we already have,” Talbott added.

If the government decides to pursue a digital dollar, it would still take years for it to be issued. Some decision makers are eyeing the latter half of this decade.

“Yes, there are some challenges with implementation," Marbury said. "But let's experiment, let's break this thing. And let's see where our vulnerabilities are so that we can begin to create a system that works for everybody and that does not exclude certain populations of the American people.”


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Helene Braun

Helene is a New York-based reporter covering Wall Street, the rise of the spot bitcoin ETFs and crypto exchanges. She is also the co-host of CoinDesk's Markets Daily show. Helene is a graduate of New York University's business and economic reporting program and has appeared on CBS News, YahooFinance and Nasdaq TradeTalks. She holds BTC and ETH.