Although they haven’t yet reached fruition, plans to issue government-backed digital currencies in the world’s two largest economies appear to be moving forward in the wake of the economic disruption caused by the coronavirus.
In the US, a provision for a new digital dollar was included in a draft stimulus bill put together last week by the Democratic party. The new currency would act as a means to make direct payments to people and businesses hit by recent economic turmoil.
According to the draft bill, the digital dollars would exist in a digital dollar wallet, defined as “a digital wallet or account, maintained by a Federal Reserve bank on behalf of any person, that represents holdings in an electronic device or service that is used to store digital dollars that may be tied to a digital or physical identity.”
The US Federal Reserve system consists of 12 Federal Reserve banks, each of which is responsible for member banks located in its district. They are located in Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco.
However, in a subsequent draft of the so-called ‘‘Take Responsibility for Workers and Families Act’’, published a few days later, mention of a new state-backed digital currency had disappeared, according to Coindesk.
Citing industry insiders, Global Times said that China’s central bank, the People’s Bank of China, has completed development of the sovereign digital currency’s basic function and is now drafting laws to pave the way for its introduction.
According to China Daily, in February a former president of the central bank said that a state digital currency’s efficiency, cost-effectiveness, and convenience would make it especially desirable during an epidemic.
Global Times said that payments giant Alipay, the financial arm of Chinese tech firm Alibaba, has reportedly publicised five patents related to China’s official digital currency from January 21 to March 17.
The patents cover several areas of digital currency, including issuance, transaction recording, digital wallets, anonymous trading support and assistance in supervising and dealing with illegal accounts, industry media reported.
The likely future extent of private sector involvement in any US digital dollar is so far uncertain.
In February, Federal Reserve chairman Jay Powell said that the idea of having a state digital currency without appropriate in-built privacy technology would not be “something that would be particularly attractive in the United States context”, but that it would “not be a problem in China.”
Analysts say new state digital currencies would enable direct peer-to-peer payments, bypassing the banking system.
“Current electronic retail money represents a claim on an intermediary, rather than functioning as the digital equivalent of cash. Central bank digital currencies could potentially provide a cash-like certainty for peer-to-peer payments,” Raphael Auer and Rainer Böhme of the Bank for International Settlements said in the Bank’s latest quarterly report.