We see plenty of reports on whether or not there will be a second stimulus package and what it might include. However, not many are talking about how you may get your next stimulus payment if it gets approved. After delivery issues with the first stimulus payment, many expect the next coronavirus stimulus check to arrive through FedAccounts and digital dollars.
The stimulus payments many people got as part of the CARES Act had several issues. These issues include late delivery, check fraud, recipients accidentally trashing their debit cards, and more.
Such issues have forced authorities to look for another more effective way to disburse the payments. One of the most popular suggestions that authorities are evaluating currently for future coronavirus stimulus payments is the use of digital dollars and FedAccounts.
Even an initial version of the CARES Act talked about the use of digital accounts. It has also been included in a few proposals for the second round, including a proposal from Maxine Waters, a Democrat from California.
In fact, the term "FedAccounts" originated from Waters' bill entitled the Financial Protections and Assistance for America's Consumers, States, Businesses, and Vulnerable Populations Act.
"FedAccounts" means a digital account for every American that will be maintained by the Federal Reserve. People will be able to access funds through digital dollar wallets managed by the Fed.
Two more bills, the ABC (Automatic Boost to Communities) Act by Congresswomen Rashida Tlaib and Pramila Jayapal and the Banking For All Act by Sen. Sherrod Brown, have discussed the idea of FedAccounts and the use of digital dollars. However, the focus of these bills is using these concepts as a delivery mechanism rather than an effort to develop a digital currency managed by the U.S. central bank.
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What experts say
On Thursday, the House Financial Services Committee scheduled a hearing called Inclusive Banking During a Pandemic: Using FedAccounts and Digital Tools to Improve Delivery of Stimulus Payments. The hearing discussed ways to expand financial inclusion in the U.S.
Morgan Ricks, a law professor at Vanderbilt University, said at the hearing that the money and payments system is a public good and, like highways, it is an important public infrastructure.
Christopher Giancarlo, co-founder of the Digital Dollar Project and former CFTC Chairman, compared the current system to bridges of the last century that are now in disrepair.
“Unless we act, this coming wave of innovation will put enormous strain on our aged financial system,” Giancarlo said, according to Cointelegraph.
The Digital Dollar Project only recently released a white paper explaining technical designs for a digital dollar.
Mehrsa Baradaran, a professor at University of California Irvine’s law school, noted that there have long been gaps in our exclusionary payments system, and the recent recession will only make these issues more evident.
“No family should have to experience hunger simply because they don’t have a bank account,” Congressional Fintech Task Force Chairman Stephen Lynch (D-MA) noted.
Explaining what digital wallets can do, Maxine Waters, chairwoman of the Financial Services Committee, said about 35 million people received their first stimulus payment in the form of paper checks and not direct deposits.
“However, I’m concerned that the people who most likely need stimulus payments may not even be able to deposit a paper check. [...] Fintech companies are stepping into the unbanked space by marketing digital wallets as low-barrier alternatives to bank accounts for U.S. consumers,” Waters said, according to Cointelegraph.
Pros and cons of a digital dollar
According to the International Monetary Fund, a digital currency issued by a central bank comes with many benefits. Such a currency would result in more financial inclusion and efficient payment systems and give more options to manage monetary policy. It may also limit the growth of private currencies, which are harder to regulate.
However, implementing digital dollars and FedAccounts won't be easy and will come with its own set of challenges. One such challenge will be that the use of FedAccounts might discourage people from using commercial banks or credit unions. Another issue with digital currencies is the cost.
On the other hand, not implementing such a payments system could prove even more costly. Other countries, such as China, Japan, Sweden and Norway, are already developing digital currencies. A couple of months ago, South Korea also launched a pilot program to evaluate the effectiveness of using digital cash.
If the U.S. fails or delays things, then it might risk losing the dollar’s dominance as it would be easier and faster to transact through other digital currencies.