A new bill would launch a large-scale test of digital dollars
2A US legislator has proposed a large-scale trial of government-backed digital money. The Electronic Currency and Secure Hardware (ECASH) Act, introduced by Rep. Stephen Lynch (D-MA), would order the Secretary of the Treasury to publicly test an “electronic version” of the US dollar. While the chances of the bill being passed are likely to remain low, it shows that governments are increasingly interested in launching alternatives to cryptocurrency.
The ECASH Act would require the Secretary of the Treasury to establish a program called the Electronic Currency Innovation Program (ECIP). ECIP would oversee a series of pilot programs for what the bill calls “e-cash” – legal tender issued by the Treasury Department that can be used without private intermediaries such as banks or credit card companies. The Treasury would start the trial within 90 days of the bill’s approval and bring e-cash to the public within four years.
While “digital dollars” are often confused with blockchain-based cryptocurrency such as Bitcoin, the ECASH law appears to discourage the use of that technology. E-cash is believed to have “minimum transaction data generating properties” — a major task for cryptocurrency systems that log transactions publicly — and it would allow peer-to-peer transfers that are not validated through a “common or distributed ledger.” Wire transfers also do not need to be validated by a central government system or payment processing company, although they do need to work with existing institutions such as banks. The idea is to mimic cash’s high privacy, ease of use, and lack of fees or processing hurdles, but subtract the physical bills.
Lynch’s bill, which is co-sponsored by Jesús “Chuy” García (D-IL), Rashida Tlaib (D-MI), Ayanna Pressley (D-MA), and Alma Adams (D-NC), requires at least three early proof- of concept testing performed within 180 days of approval. They would potentially be run in collaboration with universities or existing financial institutions, and they would be designed to experiment with different technologies. At least one test would have to use a physical card to store the money, while another test would have to store money on a mobile phone or SIM card. Those early tests would be followed by a limited public trial and “general deployment” within 48 months.
Lynch’s bill builds on widespread existing interest in a US “digital dollar.” The Federal Reserve released a preliminary report on digital currencies earlier this year, suggesting it could benefit Americans not served by the current banking system. More recently, the Biden administration has included a central bank digital currency (CBDC) as an action item in its cryptocurrency executive order. Many governments outside the US were already exploring digital currencies. Among other initiatives, the European Commission plans to propose a “digital euro” in 2023, and China launched a “digital yuan” pilot program in January.
The bill specifies that e-cash is distinct from CBDCs and would not replace a potential Federal Reserve program. Such as CoinTelegraph explainsthere is no central or distributed ledger that tracks transactions. This preserves anonymity, but it also means that users’ digital money would be lost if the device or card containing it is lost. It would build on existing Treasury cash replacement systems, such as EagleCash, a digital cash-storage card for members of the military.
The goal is to “complement and advance” other Biden management tools while getting a simple digital currency system into Americans’ phones and wallets. “Cash remains our strongest tool to advance financial inclusion while preserving privacy and security,” said Rep. García in a statement. “New digital tools should imitate – not replace it.”