The United States Congress has made provisions for a ‘digital dollar’ in two draft bills. The provisions have been made as part of a broader economic package to control the losses wreaked by the coronavirus.

The bills have been named ‘Take Responsibility for Workers and Families Act’ and the ‘Financial Protections and Assistance for America’s Consumers, States, Businesses, and Vulnerable Populations Act.’ The government, faced with the challenge to help the economy, industries, and common citizens from the ruinous effect of the coronavirus, has prepared a massive fiscal stimulus. The legislations call upon the Treasury to pay every US citizen affected by the coronavirus a disaster relief check. The payment for which has been proposed through digital dollars.

The bills propose giving monthly payments of USD 1,000 to minors and USD 2,000 to adults. This will be decided based on national unemployment rates and individual income.

The move is touted to be the first centralized digital currency distribution in the US. The digital dollar will be distributed to citizens through digital wallets. The complete exercise will be done through the traditional banking system. Those who are not registered or ineligible for digital currencies will receive the benefits through the post office system.

How does the system work?

The digital dollar proposed by the draft bills will not be represented by any decentralized system. This essentially means that the digital dollar will not be the same as a cryptocurrency like Bitcoin. The digital dollar is at best a close cousin of the popular Bitcoin. The payments can be made to the general public and business owners through a dollar balance made up of ledger entries of a Federal Reserve Bank, or as an electronic unit of value that can be redeemed by financial institutions.

Those banks that are members of the central Federal Reserve will have access to the digital dollar through exclusive digital wallets that will allow them to access a “pro rata share of a pooled reserve balance.”

Why ‘shift to digital currency’ is a welcome move

Until now, stimulus distribution methods have been distressingly slow to implement. When a similar policy was enacted in 2008, it took upwards of three weeks to directly deposit stimulus checks, while physical checks were mailed out over a nine-week period. A long-drawn waiting period is not feasible for people affected by the pandemic. According to the JPMorgan Chase Institute, 65% of families in the US lack sufficient funds to weather a simultaneous income dip and expenditure spike, while 50% of small businesses have less than 15 cash buffer days.

Digital dollars don’t require access to a bank account, thus helping improve financial inclusion by addressing the needs of millions of Americans that remain unbanked, according to the Federal Deposit Insurance Corporation (FDIC).

Digital currency is a good bet to bolster an economy facing certain slowdown. Digital currency can be used to incentivize people into spending. An example of such incentivization is discounts or rebates or cash back systems for purchases made. Taking cue from the credit card industry, a user is encouraged to spend digital dollars and accrue points which can be further used to make purchases or receive gifts from merchants. The higher spending will propel a demand for goods or services, which will further require the merchant to purchase raw materials and hire workers to create the product. This interlinked chain is sure to help the economy.

Challenges to a digital dollar system

A system that aims to reach out to every person that too in times of a calamity such as the coronavirus pandemic require addressing issues such as cybersecurity. Banks have called upon authorities to conduct a thorough risk assessment. Questions on how the public will accept such a digital currency, how they will use it remain unanswered. There are also questions on the general public’s digital literacy that will enable them to understand and use digital currencies.

Another crucial challenge is getting the acceptance of the Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) squad. Questions have been raised before on the likelihood of digital currencies being a favorite of terror financers due to its non-centralized nature of regulation.

The reason government policies are often not as effective during times of crisis is that people tend to save (or hoard) money instead of spending it. Although understandable, such behavior reduces what economists call the velocity of money. Velocity is the number of times a dollar (or any other currency) is used to pay for something. The more times a dollar is spent, the greater the economic impact. If the money is not spent and is instead hoarded or used exclusively to pay off debts, the economy suffers. A digital currency has to move in order to gain more velocity and ultimately power the economy. A lack of knowledge can severely impede the growth of a digital dollar and harm the economy. Also, considering the fact that the US has considered a digital dollar before without introducing one, it is not clear that this will actually be part of any stimulus plan that is ultimately enacted.


The US is likely to witness a loss of over 5 million jobs due to the coronavirus. According to numbers predicted by experts, the economic shortfall could hit up to USD 1.5 trillion across the US, and a recession is almost certainly going to happen. The downturn, according to experts, could last months. The job losses will likely be highly concentrated in areas like the airline industry, restaurants, hotels and real estate. Embracing the power of technology, and incorporating a mechanism similar to digital dollars into the stimulus response, is a much needed step in the right direction.