Digital Dollar Project In Light Of Recent Congressional Hearings
(Source: forbes.com)

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(Original link: forbes.com)

The Digital Dollar Project released a whitepaper last month. The Digital Dollar Project (DPP) is a partnership of the Digital Dollar Foundation, a not-for-profit, and Accenture. The DPP team consists of the former chairman of the CFTC, Chris Giancarlo, his brother, entrepreneur Charles Giancarlo, David Treat, who is a senior managing director at Accenture, and Daniel Gorfine, former head of the CFTC Innovation Lab. They are also backed by an advisory board that reads like a who’s who of the innovation experts from many private and public institutions.
This article goes into the details of two important recommendations laid out in the DPP whitepaper and their possible consequences. Recent House Finance Committee hearings expose the views of some of the principal players on retail central bank digital currency (CBDC) in the United States. A session on financial inclusion on June 11 , featured not just Chris Giancarlo, but also critics of the two tier system. The second session of June 17 featured the current Fed chairman, Jay Powell, including his views on the infrastructure of the digital dollar, which comes toward the end of the session.
The aim of the DDP is to advocate a central bank digital currency, the digital dollar. The dollar is the world’s reserve currency. The dollar’s special status allows many privileges, including demand for the dollar that sustains the borrowing power of the United States government and the use of the dollar for sanctions. In the whitepaper, DDP would like for the dollar’s primacy to continue. In order for that, the DDP says work on the digital dollar needs to start now. The DDP advocates a public discussion of the research to be conducted by private actors to support the government in its efforts to create an important public good. The DPP calls for a public-private collaboration, including the preservation of the current two tier system for the dissemination of a retail digital dollar.
The Two-Tier System The DDP advocates that the digital dollar, just like cash, should be produced by the Fed and distributed by the commercial banks to the general public.
The main benefit of a CBDC like the digital dollar 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. Paying with retail CBDC is different than paying with a credit card, or check. The check can be stopped or can bounce, payments on a card can be disputed. Paying with retail digital dollars is final and cannot be reversed.
Public Infrastructure Similar to cash, the Fed would be responsible for the production of CBDC. Production means the technical design, anti-counterfeit measures, and logistics of first tier distribution to commercial banks. This must include further retail distribution as explained below. In case of cash, the constraints around lead times and the flawless creation of a physical artifact needs controlled production and logistics. This is one of the reasons for the setting up of the Bureau of Engraving and Printing under the treasury for minting currency notes. There does not seem to be a similar reason for the production of CBDC which is a digital artifact, by the treasury as recommended by the whitepaper. Dissimilar to the multi-tier distribution systems for cash, CBDC distribution to commercial banks will be through digital wallets, not involving trucks, multiple federal reserve warehouses, armed guards and elaborate physical protocols. These digital wallets do have to be fraud and counterfeit proof and are an integral part of the infrastructure of CBDC.
It was evident from Powell’s remarks that the Fed would not be open to private operators creating the digital dollar infrastructure. In the context of a digital good like the digital dollar, the issuing framework, whether backed by DLT or not, as well as the distribution infrastructure through a digital wholesale wallet would be designed and deployed by the Fed. Input from private operators and the public into the design and implementation will probably be part of the process. Other than that, it is doubtful whether the Fed will allow direct private sector involvement in the design and build of the digital dollar infrastructure.
The distribution of retail CBDC to the public and businesses through commercial banks and financial operators is also part of the infrastructure of CBDC. In the case of cash, the physical artifact created by the Fed seamlessly crosses the bank-customer boundary. Similarly, a retail digital wallet created and distributed by the Fed will be part of the retail CBDC infrastructure, since that would be the mechanism of crossing the bank-customer boundary. To be effective, it has to support an open infrastructure and be easily integrable into existing and future commercial wallets.
Digital Identity Missing from the whitepaper is the concept of digital identity. DDP says this omission is deliberat...