In a somewhat surprise move, on May 29 2020, the Digital Dollar Foundation rolled out its white paper entitled, “The Digital Dollar Project: Exploring a US CBDC.” In a nutshell, the project’s thrust is to introduce a digital dollar version of the US currency and is summarized as follows:
“The Project seeks to advance the public interest by future-proofing the [US] dollar for consumers and institutions across both domestic and global economies.”
Who or what is the Digital Dollar Project?
The organization is stated as a partnership between the Digital Dollar Foundation and global accounting firm Accenture. The Digital Dollar Foundation’s roster of stakeholders and ownership is not immediately apparent, but per their website the directors include Chris Giancarlo, immediate former CFTC chairman and affectionately referred to as “Crypto Dad,” entrepreneur/investor Charles Giancarlo, CEO of Pure Storage, and finally Daniel Gorfine, CEO of Gattaca Horizons and Adjunct Law Professor at Georgetown University teaching FinTech law and policy.
Given the apparent sponsor – the Federal Reserve – this project is perhaps the most lofty planned stablecoin project announced to date. A stablecoin is a digital currency that is pegged 1:1 to the US Dollar such as Coinbase’s USDC and Gemini’s GUSD.
Why Do We Need a Digital Dollar?
Those already familiar with digital currencies may question the architecture and intentions of this proposed new currency. More directly, is this merely a digital token representing one dollar, still wholly controlled by the private, centralized Federal Reserve private bank? Does it also lack any policy limitation on emission of new currency? Moreover, how does a central bank’s version of the dollar compare to other stablecoins that have already been released into circulation by private financial companies? These critical factors require more disclosure, vetting and discussion before anyone can credibly render an earnest evaluation.
So does the Digital Dollar as proposed in this white paper in any way enhance or otherwise support the utility, hardness, or resiliency of the US Dollar? Austrian economists such as Murray Rothbard would certainly insist the answer is no, because simply creating a digital version of the same dollar that exists today does not meaningfully enhance any of its core characteristics, namely scarcity, durability, portability and acceptance. Granted, however, that recasting the dollar as a digital token would in fact increase its portability somewhat given it will be more convenient for use in electronic payments, commerce and other digital applications.
Perhaps a top concern beyond the robustness of this proposed digital currency is privacy. Will the state use this money as a convenient surveillance tool to even more easily track our purchases, behaviors, account balances, asset allocations, investment gains/losses, and more? This project’s white paper refers to the 4th Amendment of the US Constitution as the guidance it will use regarding privacy of the digital currency. This is a rather high hurdle to clear, however, as the 4th Amendment is recognized as bestowing Americans with the utmost privacy of “person, houses, places and effects.” Does this mean the digital dollar will in no way track information that would infringe upon our constitutional rights?
All things considered, the digital dollar is probably going to be a useful and convenient upgrade to the analog dollar, as is proving out by the already released stablecoins mentioned above. However, will the introduction of this fintech upgrade suddently render the dollar better money – more robust, resilient, or inflation-proof? If its the same dollar that will continued to suffer unlimited emission, has been stripped of its gold backing since 1933, and is a debt instrument issued by a central bank, then probably not. Will users of the dollar be deprived of their constitutional rights to privacy? We don’t yet know. But in any event, this announcement suggests that we are all now officially moving toward digital money. This brings considerably more attention to and focus on existing digital assets and cryptocurrencies as we all collectively determine what is the money we should be using as the best store of value, a medium of exchange and a unit of account.