Legislation to create a digital wallet through which Americans eligible for the COVID-19 stimulus relief payments could receive a cash infusion was proposed Monday by Sen. Sherrod Brown, D-Ohio. The standalone bill, titled the Banking for All Act, provides for the creation of "digital dollar wallets," or FedAccounts, to be maintained by any Federal Reserve bank. FedAccounts would be accessible at any post office or local bank and could be opened by any U.S. citizen.
The bill mirrors what was seen in draft House bills over the past weekend. However, the final Coronavirus Aid, Relief and Economic Security Act, which the U.S. Senate passed unanimously late Wednesday, does not include the language of Brown's bill.
House Speaker Nancy Pelosi, D-Calif., told reporters Thursday that the CARES Act, the third COVID-19 relief bill, is likely to be followed by additional efforts as the focus in Congress moves from emergency mitigation to recovery. And Brown is expected to continue pushing for his legislation, according to a source with knowledge of the matter.
Attorneys and experts in the field told Law360 that the necessary technology to implement Brown's bill, or something similar, could be ready to be deployed in short order and could provide significant cost and health benefits compared to other means of distributing relief funds. The immediacy of the crisis could also serve as a wake-up call to lawmakers that a more efficient means of getting money into the hands of American citizens is needed.
"I think this crisis could be a catalyst for a concerted bipartisan public-private response that could make a digital dollar reality," J. Christopher Giancarlo, former chairman of the U.S. Commodities Futures Trading Commission and current senior counsel at Willkie Farr & Gallagher LLP, told Law360.
Giancarlo's work on developing a digital dollar predates the current crisis, and he's a prominent voice in the effort to develop a central bank digital currency, or CBDC, through the Digital Dollar Project. While he cautions that a full-blown CBDC will need "thoughtful deliberation" and multiple iterations to get right, the COVID-19 crisis highlights a compelling case for a digitized dollar.
"This crisis is very different from the 2008 crisis," Giancarlo said. "That was an institutional crisis; this is a societal crisis. The people at the bottom of the economic scale are being hit first. A digital dollar would enable resources to be gotten to the unbanked and underbanked population immediately."
Brown's bill is particularly geared toward creating the means to provide immediate relief to the unbanked and underbanked population that Giancarlo points to.
Cornell University Law School professor Robert Hockett told Law360 that implementation of a digital dollar would not necessarily be that much of a leap, at least for the instant purpose.
Hockett has been working with New York state legislators on a bill that would implement a similar system for New Yorkers to obtain digital wallets, known as the Empire State Inclusive Value Ledger Establishment and Administration Act. He said the U.S. Treasury Department has infrastructure that allows any American citizen or legal resident to create a bank account with the agency through a program known as Treasury Direct.
"As far as the immediacy goes, if you have the digital architecture in place already, which Treasury Direct has, then you can immediately transmit [relief funds] to everybody, very quickly," he said.
Hockett noted, however, that because Treasury Direct connects to an individual's existing bank account, it leaves the underbanked and unbanked without the immediate access to funds. To address this, Hockett suggested that in the longer term a system could be devised for anyone to have access to their Treasury Direct account through their smartphone or other device.
For short-term implementation, Hockett noted that building out the technology through the Federal Reserve could be more burdensome than using the Treasury Direct pathways.
"I think that it would be a much better thing to do if you were to go to the Treasury route rather than the Fed route," Hockett said.
Hockett said the decision to forgo language creating a comprehensive digital process for transmitting the COVID-19 relief funds in the CARES Act was likely part of a concerted effort to get the relief out as quickly as possible. He expects legislators to come back and decide what form a digital dollar should take, with Brown's proposal being one such approach.
Although the Federal Reserve may not be prepared to deploy a solution immediately, the central bank has been taking a hard look at the structural, legal and practical implications of launching a CBDC based on distributed ledger technology.
In a February speech, Fed Board member Lael Brainard cited moves by other countries, such as China, to speed the development of a government-backed digital currency. The Obama appointee pointed to the already robust digital payments landscape in the United States, suggesting the Fed is not going to dive into issuing a digital currency without a full risk assessment.
Times have now changed, and Brown's bill would, together with other efforts, spur the Federal Reserve and its member banks to fast-track the development and implementation of a digital dollar.
Lilya Tessler, a partner at Sidley Austin LLP who leads the firm's fintech and blockchain group, told Law360 the Fed would have the ability to successfully implement a proposal similar to Brown's bill.
"It really [would] depend on how it's proposed and what the obligations are both for the Fed, and for the various member banks or nonmember banks, are in the near term," she said of the feasibility of such a project. "The technology itself has been built by private companies [that] may already be speaking or working with the Federal Reserve on this project."
"It may be a public-private-type partnership that results in the implementation," Tessler added.
--Additional reporting by Dylan Moroses and Andrew Kragie. Editing by Breda Lund and Brian Baresch.
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