The Post-Covid Dollar: Crypto, Inflation, and Wooden Bills

Problematic is the fact the value of fiat money rests on the “full faith and credit” of the federal government.

By Alex Dew

Photo by Alexander Popov

The complete shitshow that defined the distribution of coronavirus relief checks, with $1.4 billion sent to dead people and more than 30 million people still waiting to receive their money, has caused some to argue for creating a digital US dollar. China recently began testing its own digital currency, the DCEP, which only fanned the flames. The Senate recently held hearings on the possibility of a digital currency, and a relief bill that would use a digital currency is currently making its way through the House.

Historically, in order to keep the value of currency stable over time, the dollars in circulation were backed by commodities of equal value in the Federal Reserve. Many governments, including the U.S., used the gold standard, in which the amount of money in circulation was backed by units of gold in reserve. In 1971, the U.S switched to a system of “fiat money,” where paper money is not backed by any physical commodity. The advantages of fiat money are that the government has more control over its value and more flexibility in responding to economic crises. When an economic crisis like the Great Recession hits, the government can print more money to stimulate the economy. The cons are that the government’s ability to print money can sometimes make fiat money systems more vulnerable to inflation. Perhaps more problematic is the fact the value of fiat money rests on the “full faith and credit” of the federal government. In other words, the whole system relies on the public’s trust in the federal government, and the ability of that government to remain stable. Given Donald Trump’s bungling of the coronavirus pandemic and numerous other issues, faith in the federal government is approaching an all-time low. Trump himself has praised the gold standard, even though most experts refer to a return to its use as a “fool’s errand.”

An alleged leaked draft of the stimulus package that passed this spring contained a measure for using digital currency that was later taken out. In April, Congresswomen Rashida Tlaib (D-MI) and Pramila Jayapaul (D-WA) introduced the Automatic BOOST to Communities (ABC) Act, a new stimulus proposal in which low-income Americans would receive $2,000 per month during the payment period, and up to $1,000 a month for a year after the payment period. In order to pay for the program, Congress would authorize the Federal Reserve to create “FedAccounts,” digital-dollar wallets accessible via an app on their phones. The ABC act is currently making its way through various committees in the House of Representatives.

The Senate Banking Committee’s hearings on the future of the digital dollar began June 30th. While experts testified to the many advantages of the digital dollar, senators from both parties seemed skeptical. Chairman Mike Crapo (R-Idaho) stated that “rules of the road” were necessary for the new system, and Senator Sherrod Brown (D-Ohio), asked “Why on earth would we trust big tech with our banking system?”

Senator Brown’s question is valid, especially considering last year’s congressional hearings on Facebook’s Libra currency, to be backed by “a basket of currencies and commodities,” according to Forbes. Co-creator of the currency David Marcus insisted that Libra was “decentralized” and consumers wouldn’t have to put their faith in Facebook to maintain its value. These claims seemed to fall on the deaf ears of skeptical regulators, who requested a moratorium on the Libra project last year. 

The advantages of digital currency mostly have to do with its convenience. Transactions can happen with the click of the button, and all are easily tracked. Digital currency offers some fraud protection, because consumers can make purchases without providing the personal information required by a credit card purchase. Most systems of digital currency don’t rely on banks, which make their profits by administering sometimes draconian fees to users. Further, digital currency is easily accessible to anyone with internet access, while low-income Americans still face many barriers to opening a bank account. Many of the Americans who most need the stimulus checks are unable to get them because they simply do not have a bank account.

The disadvantages though, are worth noting. The cryptocurrency market is notoriously volatile, the value often changing quickly and drastically. And while users might be more protected from types of fraud like identity theft, hackers are still able to access digital wallets and drain them. Further, while it would eliminate the need for banks and their fees, the U.S. would either need to use a third-party blockchain system to distribute the money, or create the entire system themselves. The use of a third-party system brings with it the unsavory prospect of whoever runs that system’s retaining too much control over an enormous sum of money. 

The other option is using a CBDC, or retail central bank digital currency, in which the Federal Reserve produces the digital currency and uses commercial banks to distribute the money to the public. Forbes reports that the primary advantage of a CBDC is “the fact that it is a liability of the Fed. The Fed is the ultimate counterparty with the lowest credit risk; hence using a CBDC is like using cash or in the wholesale context, a FedAccount.” The House Finance committee held hearings on financial inclusion that included considering using a CBDC to disperse stimulus payments. 

While use of a digital dollar may ameliorate some of the economic damage wrought by the coronavirus pandemic, the system would have to become fully operational very quickly. Kevin Werbach, Professor of Legal Studies and Ethics at UPenn’s Wharton School says, “[R]ealistically, the US will not implement a digital dollar in time for to make a difference for the COVID-19 response.” Rushing into a CBDC or other digital currency system comes with many risks, and there may very well be logistical difficulties in implementation, just as there were in making the direct deposits and distributing the paper checks of the first stimulus package. 

In the absence of a new stimulus package, some communities are trying to address the pandemic’s economic problems by creating their own currencies. The town of Tenino, Washington, home to only 2,000 people, has started printing wooden dollars. Residents facing economic hardship are eligible for $300 in wooden dollars, with each wooden bill worth $25. The wooden bills can be used for purchases from many of the town’s stores. 

While wooden bills might sound antiquated, the town has come up with a creative way to solve a problem without any help from the state or federal government. Any crisis creates a need for innovation, and the coronavirus pandemic is no different. Whether or not the U.S. decides to institute a digital dollar, the need for economic relief is clear, as is the need for a smooth system of distribution.

Tags:

  • Show Comments

Your email address will not be published. Required fields are marked *

comment *

  • name *

  • email *

  • website *

You May Also Like

Punish the “Sedition Caucus”

There is only a fundamentally polarizing moment, bringing into crystal clarity the result of ...

‘Satanic Hispanics’ urges aud to accept audacity

An amazing omnibus of scary stories rooted in Latin culture Satanic Hispanics presents a ...

Welcome to the Boomtown

Right now there’s so much crude floating around producers are competing to find stash ...

Houston’s Khruangbin Release New Single “Pelota”: Watch the Video

Soft-psyche trio Khruangbin have released a latin-driven new single ahead of their highly anticipated ...

The Reality Check… is in the Mail

Two terrorist actions occurred over the end of year holiday to remind us all ...

Escalating the Demographic War: The Strategic Goal of Israeli Racism in Palestine

This slow-paced ethnic cleansing includes the expansion of the illegal Jewish settlements in occupied ...