Ezechiel Copic is a Partner at cLabs, working on the Celo blockchain platform. He previously held a variety of roles at the Federal Reserve Bank of New York.
As the world grapples with the devastating effects of the coronavirus, the need for a digital alternative to paper money becomes increasingly clear. In light of the potentially ruinous economic impact now facing society, the U.S. government is preparing an enormous fiscal stimulus package likely calling for the Treasury Department to send checks to every citizen in the country. But this approach has significant shortcomings — and the government needs to adopt a more innovative alternative.
In a nod to these shortcomings, a draft Senate Bill, inspired by an earlier House Democrat proposal, redirected the public discourse by calling for the use of a “digital dollar” and a corresponding “digital dollar wallet” to help send funds expeditiously to all qualified individuals.
Until now, stimulus distribution methods have been distressingly slow to implement. When a similar policy was enacted in 2008, it took upwards of three weeks to directly deposit stimulus checks, while physical checks were mailed out over a nine-week period.
Waiting weeks, if not months, for help, however, is not an option for many. According to the JPMorgan Chase Institute, 65% of families in the U.S. lack sufficient funds to weather a simultaneous income dip and expenditure spike, while 50% of small businesses have less than 15 cash buffer days.
Embracing the power of technology, and incorporating a mechanism similar to digital dollars into the stimulus response, is a much needed step in the right direction. Using a concept like digital dollars, stimulus funds could potentially be sent instantly and directly to the mobile phone or email address of every person in the country, safely and securely.
Importantly, digital dollars don’t require access to a bank account, thus helping improve financial inclusion by addressing the needs of millions of Americans that remain unbanked, according to the FDIC.
But improvements in distributional efficiency and increased access are just part of the appeal. The flexibility and programmable nature of technology protocols underpinning today’s digital currencies and stablecoins also allow for a more innovative transmission of fiscal and monetary policy, especially in times of crisis.
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