New bill tasks Treasury, not Fed, with digital dollar issuance

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Every conversation about a hypothetical US digital dollar begins and ends with the Federal Reserve’s authority and ability to put one out.

New legislation aims to change that.

On March 28, Congressman Stephen Lynch (D-MA) will introduce his Electronic Currency and Secure Hardware, or ECASH, Act. The bill directs the US Treasury to pilot software, hardware and network tech to run a peer-to-peer retail dollar that aims to resemble cash as much as possible. Cosponsoring the bill were Chuy García (D-IL), Rashida Tlaib (D-MI), Ayanna Pressley (D-MA), and Alma Adams (D-NC). 

One of the central holdups with a US central bank digital currency, or CBDC, is the Fed’s ability to handle retail accounts. In traditional finance, the Fed is at the center of the US’s web of money, but it only holds a select number of “master accounts” for major financial operators. All other entities — be they individuals, corporations or smaller financial players — access the Fed’s ledger through intermediaries.

There has, consequently, been a lot of doubt as to the Fed’s ability to handle retail accounts — including on the Fed’s own board.

“You hear the Fed say things like, ‘we don’t have the competency to do retail services, we don’t provide retail banking services, so we can’t provide retail CBDC,’” Rohan Grey tells The Block. “The reality is they are probably right in that they don’t have that capacity. But they are incorrect to say that the government doesn’t have that capacity, because the Treasury provides those services all the time.”

Grey, an assistant professor at Willamette’s law school, is one of the bill’s authors, alongside Yale’s Raúl Carrillo. A progressive firebrand with ties to the House members known as “The Squad,” he also helped draft Rep. Rashida Tlaib’s (D-MI) STABLE Act.

At the same time, Grey hopes that the bill’s focus on cash — especially, the privacy and anonymity of same — will lend itself to Republican support. “This bill may get framed as radical but I think that’s the wrong way of looking at it. This is a small-c conservative defense of existing privacy and freedom,” says Grey.

Uniquely, the ECASH Act would digitize the dollar not just without decentralized ledger technology, but without a ledger at all. One of only technological limitations it puts on the Treasury’s pilot programs is for “secured hardware-based architectures for the purposes of creation, distribution, holding, and payment that do not involve any common or distributed ledger.”

The pilot programs, which along with hardware wallets would include a cell phone app and a form of prepaid card, would then open up to field tests.

The anti-money laundering restrictions on these wallets would depend on the same sort of third-party reporting requirements as cash, e.g. a bank has to report to the IRS when a customer makes a deposit over $10,000.

A central question is the cybersecurity that such wallets could provide.

Given that a successful digital counterfeiter would have instant access to a much wider payment network than one with a suitcase full of fake cash, such a project would need to be airtight. One of the advantages of a ledger — whether centralized or decentralized — is having a reference point for aberrant transactions.

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