In today’s age many of us prefer to pay with Apple Pay, Venmo, or a card — rarely using cash. But what happens when we no longer have the agency to choose our preferred payment method? What happens when we lose or forget our cards and are no longer able to pay with cash? What would we do when our phones lose power, or there is a power outage? What happens to older generations who to this day do not know how to use our modernized phones or electronics? These are all questions consuming the public — or should be, as the United States shifts to digital currency. The following is everything you need to know about the establishment of a digital currency as of April 8, 2023.
There are two separate entities in this digital currency conversation, CBDC and FedNow. While “a Central Bank Digital Currency (CBDC) is a digital form of a country’s sovereign currency” (“Technical Evaluation,” 2022, p. 5), FedNow is “ a new instant payment infrastructure developed by the Federal Reserve that allows financial institutions of every size across the U.S. to provide safe and efficient instant payment services” (“About the FedNow,” 2023). In other words, FedNow will allow you to send and receive payments right away, while the Central Bank Digital Currency would be a complete shift from the U.S. dollar to a Federal Reserve central bank. Although two different things, the implementation of such establishments would work hand in hand with devaluing the U.S. dollar as our economy establishes itself as a digital currency.
FedNow is set to launch in July 2023, and is meant to cut out the third party in transactions, making deposits and withdrawals more efficient and faster. Although more efficient, FedNow has been met with privacy concerns and widespread fear that it will destroy the U.S. dollar. But, according to Darrell Duffie, a finance and management Ph.D. professor at Stanford Graduate School of Business, “FedNow, as it’s currently envisioned, would allow banks to choose whether they provide the service to their customers — and the implementations would look different across the board” (Loe, 2023). Thus, on its own, FedNow would simply act as an optional digital transaction app. But, when paired with a U.S. CBDC, it “might affect everything ranging from the stability of the financial system to the protection of sensitive data” (“Technical Evaluation,” 2022, p. 5).
That said, the executive order President Biden signed on March 9, 2022, only establishes the importance of the research and forming of a U.S. Central Bank Digital Currency (“Technical Evaluation,” 2022, p. 5). Thus, a FedNow release does not directly mean that a CBDC will come into fruition. The goal is for the development of a “CBDC system […]designed to avoid risks of harm to the international monetary system and financial system, including broad monetary sovereignty and financial stability” (“Technical Evaluation,” 2022, p. 8). While intended to create financial security, there is the potential to negatively disrupt the U.S. economy and its people. Although shifting to a digital currency would help eliminate fraudulent transactions and simplify the collection of taxes, this idea of “monetary sovereignty” would allow the state to execute legal control over its currency and the use of such currency. Thus, the widespread fear of a shift towards digital currency. If such a system is employed, the CBDC would pose a threat to civil liberties, as the government would have full inexorable control over residents’ money and hence agency.
Moreover, while the establishment of a digital currency is profitable on paper, such system would be inequitable and bring immense fear into our society because it would strip individuals of their control and freedom because such currency would allow the government to control what you spend your money on — a serious matter in a society with social justice and political controversy. Thus, there are a lot of questions regarding accessibility and equity that must be considered when discussing and establishing a digital currency.
References:
About the FedNow service. The Federal Reserve. Retrieved April 8, 2023, from https://www.frbservices.org/financial-services/fednow/about.html
Loe, M. (2023, April 7). No, FedNow does not create a Central Bank Digital Currency. Verifythis.com. Retrieved April 8, 2023, from https://www.verifythis.com/article/news/verify/money-verify/fednow-does-not-create-us-central-bank-digital-dollar-2023-fact-check/536-59448fd0-4edd-463b-8ac9-53e30b66aa2b
Technical Evaluation For A U.S. Central Bank Digital Currency System. The White House. (2022, September). Retrieved April 9, 2023, from https://www.whitehouse.gov/wp-content/uploads/2022/09/09-2022-Technical-Evaluation-US-CBDC-System.pdf