Understanding The U.S. Digital Dollar. How It Could Be Used and What It Might Mean For You.

Understanding The U.S. Digital Dollar. How It Could Be Used and What It Might Mean For You.

In the midst of the covid-19 pandemic the United States government moved relatively quickly in passing its 2 trillion dollar stimulus plan titled the CARES ACT.  An important detail of the Act was the provision for stimulus payments going directly to eligible individuals and families.  A few weeks since the Act has passed, disbursements are slowly trickling out to the intended payees.  The potential for difficulty in getting timely payments out to the individuals and families was a concern first expressed when drafting the bill. 

The House Democrats as a solution to the payment distribution process proposed the U.S. Digital Dollar.  The House Bill defined the digital dollar as a balance expressed as a dollar value consisting of digital ledger entries that are recorded as liabilities in the accounts of any Federal Reserve Bank or … an electronic unit of value, redeemable by an eligible financial institution”.  The digital dollar would be a digital representation of the paper dollar and created to operate on a blockchain-built platform.  The government would make stimulus payments directly into the recipients’ digital wallets.

 A digital wallet is designed as a software application that can be installed onto an electronic device such as a smartphone or tablet.   The U.S. Digital Dollar wallet would likely have the interface of a traditional online banking account showing the wallet owner their transaction history and digital dollar wallet balance.  Once the digital wallet is created, the Federal Reserve Banks would maintain a copy of each wallet and would be able to transfer funds directly to these wallets.  A person with a digital wallet would then be able to obtain their funds in cash via participating banks and ATMs, or possibly transact directly from their wallet.   

The digital dollar was ultimately removed from the final version of the CARES ACT but it is likely that Congressional discussions about creating the digital dollar will continue, even if it won’t have a direct impact on the CARES ACT.    


A blockchain-based digital currency that can be used for direct peer-to-peer transfers without the need for a third party intermediary sounds very similar to Bitcoin.  However, if the U.S. Government does one day issue a digital dollar, there will be key differences between it and other digital currencies such as Bitcoin.

Bitcoin was birthed from the Great Recession and now similarly, this new economic crisis may lead to the birth of the U.S. Digital Dollar.  Bitcoin was created with the specific purpose of providing a universal currency that was not reliant on or controlled by a governmental body.  It was meant to be decentralized and not subject to monetary policy.  As a result, only 21 million Bitcoin can ever come into circulation.  Bitcoin’s value can be influenced on a global economic level however it is not directly vulnerable to the political or economic stability of any individual government.  It was created to be a true fiat alternative.

In contrast and no different from its paper counterpart, the U.S. Digital Dollar would be a centralized currency directly tied to the United States Federal Government and Federal Banking system.  The U.S. Digital Dollar would be more susceptible to inflation because the amount of dollars in circulation can be increased or decreased as a matter of monetary policy.  Consequently, the U.S. digital dollar would be vulnerable to the political or economic stability of the U.S. government.

There is also a key technological difference between Bitcoin and the U.S. Digital Dollar.  Like Bitcoin, the transfer of the U.S. Digital Dollar would be able to be tracked across its blockchain network.  However, Bitcoin wallets are pseudonymous.  That means wallet addresses (public keys) can be seen but personally identifiable information of the Bitcoin wallet’s owner remains unknown.  That won’t be the case for the U.S. Digital Dollar since the Federal Reserve will need to attach each wallet to a personal identity, likely a tax identification number. 


For government agencies charged to distribute government crisis benefits to vulnerable populations, especially those without access to banking services, direct transmission of digital dollars to smartphones would be a time-saver. Moreover, in a pandemic where viruses are transmitted by paper money and metal cash transactions, paying for food and essentials with digital dollars is more than convenient, it could be a lifesaver.” – J. Christopher Giancarlo

People should not be confused with what the U.S. Digital Dollar actually brings to the table.  It may be accurate to say that paperless transactions could be a lifesaver during the midst of a pandemic such as this one.  In addition to health and safety concerns, paperless transactions also reduce the costs and inefficiencies related to a cash based economy.   However we don’t necessarily need a U.S. digital dollar to reduce paper money transactions.  The paperless economy has been gaining momentum for years as less and less people make payments using cash or checks.  The ability to make borderless, peer-to-peer transfers of money without the need for a third party intermediary is also an excellent feature.  But, we don’t need the U.S. digital dollar for that either.  Bitcoin and other cryptocurrencies have that covered.   

The key value and impact from a U.S. Digital Dollar would be with the digital wallet created to receive and store the U.S. Digital Dollars.  A lot of recent talk is about helping the “unbanked” population.  Not all people need bank accounts per se as much as they just need a mechanism to securely receive, store and transfer their money.   Bitcoin and other cryptocurrencies solve this problem as well.  But Bitcoin and other cryptocurrencies are not accepted everywhere in the United States which still makes them prohibitive for people who do not have a bank account to convert their cryptocurrency into the U.S. dollar to transact as needed.  The U.S. Dollar is accepted everywhere in the United States.  Therefore unlike the others, the U.S. Digital Dollar wallet would be a digital wallet that enabled the “unbanked” to securely receive, store and transfer United States dollars.  Additionally, the digital wallet would allow the government to fund payments directly to individuals via their digital wallets.  This could apply to tax returns, federal grants, loans, subsidies, stimulus and entitlement payments, all without the recipient needing a bank account.


The regulatory pushback that the United States Government gave to the domestic adoption of cryptocurrencies can lead many to believe that the government is against the development of cryptocurrencies.  Not all members of congress are naive to the role cryptocurrencies can play within the digital economy.   And that role goes far beyond creating a mechanism to facilitate stimulus payments.  It would be smarter to conclude that the United States government is against the adoption of cryptocurrencies that they cannot properly regulate and control.

There would be serious consequences for a country if Bitcoin or any other cryptocurrency emerged as a true alternative to its currency.  Firstly it can significantly devalue that country’s currency and secondly, a federal government’s lack of regulatory control over their dominant currency can impact domestic and international policies. How real and imminent that threat of the dollar being replaced is debatable, however a way for the United States government to combat that potential danger is by creating its own cryptocurrency that they can regulate, monitor and control.  

The U.S. is not the innovator in this field.  China and India are two examples of countries that have initially banned the use of cryptocurrencies in their country and now are developing their own cryptocurrency.  Coincidence?  France, Japan, the Bahamas, South Korea and Sweden are all also reportedly developing their own central bank digital currencies.  Countries are understanding the value in having a government backed digital currency deployed within the digital economy.  The U.S. Digital Dollar is not a replacement for Bitcoin but it makes sense as an alternative option to the paper dollar and supplemental option to traditional banking as we know it today.  If it comes, the U.S. Digital Dollar can play a role within the United States economy that other cryptocurrencies currently do not.  And whether we like it or not, it gives the U.S. Government the control that they desire. 

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