Financial technology experts agree that some form of digital payment system by the U.S. central bank is inevitable, although opinions diverge on the form it should take.
Rapid progress on a central digital currency elsewhere could threaten U.S. hegemony over global finance, and the current payment system is leaving some Americans behind financially, fintech advocates argue. China and Singapore are experimenting with digital currencies and may soon be joined by Russia, Japan and Sweden. In addition, private companies, including Facebook Inc., have proposed their own digital currencies that may challenge traditional payment networks.
In the U.S., a central bank digital currency, or CBDC, issued by the Federal Reserve, would be in the form of instantaneously transferable electronic dollars, unlike the digital dollars in bank accounts today, which require trusted parties to agree that the funds are available before a transfer can take place.
Congress has explored whether a CBDC would help get government funds such as COVID-19 relief payments into the hands of underbanked recipients sooner.
Groups studying the idea include The Digital Dollar Project, headed by Christopher Giancarlo, the former chairman of the Commodity Futures Trading Commission. The project supports maintaining the banking system, which would supply consumers with the central currency, although it wouldn't be like retrieving cash from ATMs.
"There appear to be a number of forward-leaning banks and bankers who see some of the opportunities with respect to CBDC, or at least are actively exploring the potential," said Daniel Gorfine, a Georgetown Law professor who is working on the project. He said in an interview that central bank digital assets could help the underbanked by reducing costs.
"This is why we need to conduct real-world testing," he said.
Giancarlo previously worked with Gorfine, appointing him in 2017 to run LabCFTC, an in-house think tank focusing on cryptocurrency and other tech issues.
Morgan Ricks, a professor of law at the Vanderbilt Law School, said there is a widespread view that a CBDC will improve inclusion, but he doesn't support the use of a distributed ledger to track a Fed digital currency. Digital ledgers, such as blockchain, are non-centralized networks that rose to prominence as the backbone of cryptocurrencies such as Bitcoin.
"I think it would be a mistake to go for a blockchain solution," Ricks told CQ Roll Call. "It's slow and inefficient, and it doesn't solve any problems."