Separate bills in the US House of Representatives and Senate propose creating so-called digital dollars and the accounts that would hold them, in order to blunt the shock of the coronavirus shutdown.

Supporters of the legislation claim the Fed digital dollar accounts would help speed up payments to households that need support. They say the US government currently lacks adequate infrastructure to distribute coronavirus-related payments as widely as needed.

The texts of the legislations define the term “digital dollar” as one of two things: 1) “a balance expressed as a dollar value consisting of digital ledger entries” and 2) “an electronic unit of value, redeemable by an eligible financial institution.”

Advocates argue that the central bank’s actions aimed at supporting the financial system have solely targeted banks and companies. Households have yet to receive meaningful support.

Aiming for a more effective monetary policy

The Fed accounts could also help boost the government’s monetary policy by bypassing the erratic financial system and heading directly for businesses and consumers.

For example, instead of the Fed taking action to influence market rates, a rather troublesome process, it could offer interest-bearing accounts directly to the public.

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By GlobalData

By changing rates at that level, or even straight up adding Fed-created money to the accounts, it could influence economic decision-making at the household level.

“A very significant improvement”

Most experts agree a Fed-branded digital currency would be a useful supplement to the dollar and would offer the central bank considerable benefits.

Fed accounts would be a very significant improvement in getting money speedily to those who need it most, said Andrew Levin, an economics professor at Dartmouth College who has called for the Fed to launch a digital currency.

Prof. Levin says that in the current situation, it doesn’t matter if these Fed accounts got stimulus funds from the Treasury Department or through money printing directly at the Fed. The main issue is just getting money out the door quickly in a fast-moving crisis, he said.

Even if Fed digital accounts aren’t in place to deal with the current crisis, they can build out the tool kit for dealing with future stress, supporters say.