July 20, 2020

In March, three legislative proposals were made in the U.S. Congress that called for the creation of “Digital Dollar Wallets”.  These wallets would be issued to individuals as a way to get government stimulus money to them more quickly.  Sen. Sherrod Brown (D-OH) and Reps. Waters (D-CA-43) and Tlaib (D-MI-13), all introduced such ideas as a part of their larger proposed COVID-19 aid and stimulus packages.

The Phase Three relief package included direct payments to most Americans. For those making $75,000 and below, and couples earning under $150,000, you’ll get $1,200 for each of you – plus $500 for each child under 17. 

These digital wallet proposals were intended to upgrade the delivery and utility of these payments. 

  • The Tlaib proposal (Automatic Boost to Communities Act) would call for the creation of what appears to be a Central Bank Digital Currency (CBDC), whereby the Federal Reserve itself would directly develop, operate, and manage a government digital currency and wallet system.
  • Rep. Waters’ proposal was contained in her larger stimulus package legislation, the Financial Protections and Assistance for America’s Consumers, States, Businesses, and Vulnerable Populations Act (H.R. 6321), which contained a host of bills offered by Democratic members of the House Financial Services Committee.  
  • Sen. Brown’s proposal was contained in a standalone bill and very similar to Rep. Waters’, but with entirely different governance and functionality. 

We have full summaries available upon request, but let me note some key differences and why they matter:

The Waters and Brown proposals both rely on and require private banks to build, implement and operate the consumer facing digital dollar wallets (what the bills call “Pass Through Digital Dollar Wallets”).  These wallets would be the “pass through” between the Federal Reserve digital wallet for each individual and the individual themselves.  

Seemingly, this would alleviate some of the design, construction, and distribution issues inherent in the development of a consumer, digital Federal Reserve Bank account.  They also utilize the U.S. Postal Service for a few functions, mostly as a way to improve financial access in banking deserts.

The idea of consumer Federal Reserve accounts is not a new one and neither is “Postal Banking”.  These are long-standing policy solutions that have been championed by some, mostly on the left, in the face of a variety of different, identified problems.  These proposals would appear to be a “modernization” of these ideas, re-engineered using digital wallets because technology and customer preferences changes have allowed them to do so.

There has been growing consensus that is reflected in these proposals:

  1. Payments need to be faster;
  2. The future of payments is a variety of government networks, private networks, permissionless networks, anarchic networks, and other flavors, interoperating in some form or fashion.

If this idea were to be implemented, it would open up enormous opportunities for those who could provide this plumbing and infrastructure to the government, banks, and consumers, to get these payments done quickly.