The Digital Dollar Project – What is it & What do You Need to Know?
The Digital Dollar Project is causing a major buzz on the cryptocurrency news scene.
On May 28th, the Digital Dollar Project made available a new whitepaper outlining its vision for a new digital version of the U.S. dollar. However, the digital dollar that the Digital Dollar Project is proposing, is not one that will ultimately replace the existing dollar. At least, not in the immediate future.
What is The Digital Dollar Project?
The idea of creating a digital version of the U.S, dollar is nothing new. However, it is important to note that the Digital Dollar Project is not looking to replace the existing U.S. dollar as we know it.
The Digital Dollar Project began in January 2020, in the form of a partnership between the Digital Dollar Foundation and the consulting firm, Accenture. Its primary objective is to create a tokenized Central Bank Digital Currency, which will be a new, additional form of central bank currency.
- The Digital Dollar Project proposes creating a central bank digital currency that will be independent of the U.S. dollar as it exists at present.
- Physical cash will still be able to exist alongside the digital dollar.
- The Digital Dollar Project has several aims. These include helping people who are under-banked access financial services while making domestic and international payments faster, safer, and more secure.
Why Does the United States Need a Digital Dollar?
The Digital Dollar Foundation says that its chief objective is to address failures in the existing U.S. Financial system.
If we look at recent events in the U.S., it is clear that flaws exist concerning how people access and use currency. For example, despite the passing of the Cares Act in March, millions of Americans are still waiting on their Federal Government Coronavirus stimulus checks.
With a digital dollar, delays in receiving emergency payments like stimulus checks wouldn’t be an issue. More importantly, in theory, at least, even U.S. residents without a bank account would be able to receive stimulus payments via digital wallet apps on their smartphones.
A digital dollar will also make it possible to transact money easier in times of crisis.
- In theory, a digital dollar will make it possible to transact cash instantly, even in the event of bank closures which might make accessing physical cash impossible.
- A digital dollar will make it possible for the U.S. government to instantly get funds to organizations participating in disaster relief efforts.
- Digital dollars will (presumably) make it easier to transact cash peer to peer instantly, without incurring high fees — even when sending large amounts of cash long-distance.
How Will the Digital Dollar Enter Circulation?
In the new Digital Dollar Foundation whitepaper, it is made clear that the digital dollar the foundation is proposing will be under central bank control. This means that rules governing the issuance of the digital dollar will be similar to current rules governing the issuance of real dollars.
At present, the U.S. dollar reaches the general public through a 2-tier distribution system. The Federal Reserve issues dollars to commercial banks. These then distribute cash to the public in the form of loans, credit, and interest payments on savings.
The Digital Dollar Foundation whitepaper proposes issuing digital dollars the same way. This means that if the digital dollar ever launches, banks won’t automatically transform existing dollars in accounts to digital dollars.
Likely, the launch of a digital dollar will see the existing dollar and its digital equivalent live side by side. This will mean that on request, banks will be able to convert dollars in accounts to digital dollars. However, in effect, there will be two distinct currencies in circulation, one digital, one traditional.
How Will The Digital Dollar Affect the Wider Cryptocurrency Market?
At present, it looks unlikely that a digital dollar will have any immediate effect on the wider cryptocurrency market.
Unlike coins like Bitcoin, digital dollars will not have a set supply. It will, therefore, not be possible for digital dollars to increase in value over time. However, a digital dollar may give coins like Bitcoin a boost, by making it easier to convert BTC to fiat cash.
One worry, of course, concerns the fact that the U.S. government might prohibit the exchange of digital dollars for Bitcoin. However, as the digital dollar is just a proposal at present, what rules might one day govern its usage are still a matter of pure speculation.