U.S. Digital Currency Takes A Step Forward, Here’s What It Could Look Like
Proposals in the United States House of Representatives provide a plan for the creation of a digital currency in the country that functions in a similar way to the U.S. dollar. While some might assume that digital currencies are similar to the modern cryptocurrencies that are gaining traction, they are actually fundamentally different. Cryptocurrencies use technology known as the blockchain, which uses cryptography to track transactions between currencies across accounts. It’s the same technology used to create and manage non-fungible tokens (NFTs), ensuring that an account actually owns a given NFT.
One of the key flaws regarding cryptocurrency is that it isn’t regulated or overseen by a government entity. For that reason, it’s less stable than other currencies, which is part of the reason why some cryptocurrencies experience large fluctuations in value. Digital currency, on the other hand, does not suffer from any of these compromises. The key difference between digital currencies and cryptocurrencies is that digital currencies are token-based, while cryptocurrencies are account-based. This means that digital currencies are not as easily tracked when making transactions, but it also means that lost digital currency wallets would have the same effect as losing a cash-filled wallet. Most importantly, digital currencies hold the full weight of a legal tender and are usually backed by a government entity.
Three U.S. Representatives introduced the “Electronic Currency And Secure Hardware Act,” also known as ECASH, on Monday, March 28, 2022. The bill would give the U.S. Treasury the authority to experiment with a digital currency in the United States, offering the possibility of a U.S. digital legal tender in the coming years. It’s a shift from the norm, as the U.S. Federal reserve is generally tasked with managing modifications to the country’s financial system. The ECASH act notes that the U.S. Treasury already mints physical legal tender, and has successfully managed the U.S. Debit Card Program, as reasons for its authority over a potential digital currency.
Like many digital currencies, the proposed bill would experiment with a token-based digital currency. The digital legal tender wouldn’t be connected to an account or monitored by a blockchain, which has benefits and drawbacks. “This innovative legislation requires Treasury to incorporate key security and functionality safeguards into the e-cash system that are generally associated with the use of physical currency,” the bill states. These safeguards include “anonymity, privacy, and minimal generation of data from transactions.” These provisions ensure that a Treasury-backed digital legal tender would function like cash, utilizing all of its benefits.
According to the bill, the digital currency would be kept on hardware devices to maximize privacy. A digital wallet, perhaps on a smartphone, or a credit card-like device would hold the legal tender. Each wallet would not be connected to an account, and could not contain any personal identifiers, as defined by the proposed legislation. A lost or stolen wallet would have the same impact as lost or stolen cash, with little to no recourse to rightfully re-obtain stolen currency. However, there are some benefits a U.S. digital currency has over cash. It would give people who are unable to open a bank account a way to safely and securely store money digitally. If passed by the House and the Senate, a pilot program for the digital currency would begin within months and a nationwide rollout would occur within four years of passage.
Source: H.R. 7231