The federal government is weighing whether to radically change the way money is spent in America as they explore the pros and cons of adopting a “digital dollar” as the national currency.
The U.S. wouldn’t be the first country to start pushing for a new futuristic, computerized standard for its legal tender. China is trying out a digital yuan, and India recently announced a digital rupee is in the works.
A recent report from the Federal Reserve set out to examine the positives and negatives of making such a change, which would still include minting physical cash and coins while transitioning to a central bank digital currency (CBDC) as the official monetary unit.
One of the positives: Less credit card and banking fees. The reason? Elimination of the middleman between your money’s current and future homes.
The current setup involves a lot of unseen steps between your debit card or online wallet and the vendor you’re issuing a payment to. Each one of those steps costs money by way of transaction fees.
In a strictly digital world, a sum could be simply transferred straight from one digital wallet to another, much like cold, hard, physical cash is passed from one hand to another with no assistance in between, and therefore no fees to pay for that assistance.
People could still use apps like Venmo, Apple Pay or Google Pay if they want to -- But they wouldn’t have to. And competition from a version of online currency that doesn’t involve extra fees would likely cause the apps that do involve those fees to lower their rates to stay competitive.
Another plus would be giving Americans who don’t use banks a way to execute online payments.
The Federal Reserve estimates more than 5% of households in the U.S. are “unbanked.” A federally-issued digital wallet would allow them access to an increasingly cashless economy.
As for the negatives, privacy concerns sit at the top of the list as it would have to be determined just how much information the Federal Reserve would have access to when it comes to private citizens’ sensitive banking information.
And of course, anything online is a temptation for hackers, so cybersecurity would have to be given the utmost importance if such a move would be made, and likely a complete modernization of the nation’s financial infrastructure would be called for.
Still, while the U.S. dollar remains the standard for many other nations across the globe, it may not continue to be so if America doesn’t involve with a changing world, and the switch could become inevitable at some point.
That’s why the Federal Reserve is moving forward, albeit slowly. Federal Reserve Chair Jerome Powell was asked about moving the nation’s moolah online last year and whether he was worried the U.S. could fall behind some of the early-adopter nations.
His answer? “I think it's more important to do this right than to do it fast.”
With that in mind, the change is likely at least five to 10 years away, so you don’t have to worry about your bank-averse granddad’s mattresses stuffed with cash becoming worthless just yet.
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