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Is the digital dollar dead?

And a digital dollar looks less and less likely by the day.

The case for cash

Opponents of a hypothetical US CBDC cast it as a solution in search of a problem. Dollars are already digital, after all. If you paid with a debit card recently, did you not pay with digital dollars? China’s move to pilot a consumer central bank digital currency is not reason by itself to pursue one, they argue. Libra failed to launch; a global digital currency run by a tech company is no longer an issue. What purpose would a government-issued digital currency serve other than to give the government a tool for financial surveillance and control?

But there is a problem—probably one that you’ve noticed yourself. Physical cash is going away. Fewer and fewer vendors are accepting bills and coins. On top of that, consumers are simply choosing to use less cash. That’s in part out of convenience, but there’s another big reason: you can’t use cash to buy things on the internet.

In the US, cash payments represented just 18% of all payments in 2022—down from 31% in 2016, according to research by the San Francisco Fed. Outside the US, things are even further along the road to a cashless society. The decline of cash is a primary reason more than 100 countries are researching the idea of creating their own digital currencies.

The solution is a digital currency with all the features of physical cash, according to Willamette University law professor Rohan Grey.

That we can’t use cash on Amazon is only one argument for government-issued digital cash, says Grey. In the US, plenty of people rely on bills and coins because they don’t have bank accounts and can’t get credit or debit cards. The Federal Deposit Insurance Corporation estimates that in 2021, 5.9 million US households were “unbanked.” Besides that, Grey argues, cash has unique “social features” that we should be careful to preserve, including its privacy and anonymity. No one can trace how you spend your coins and bills. “I think anonymity is a social good,” he says.

Last year, Grey helped author a US House bill called the Electronic Currency and Secure Hardware Act (ECASH). The legislation, which was introduced by Representative Stephen Lynch of Massachusetts, would have directed the Department of Treasury to create a digital dollar that could be used both online and offline and have cash-like features, “including anonymity, privacy, and minimal generation of data from transaction.” It didn’t make it out of the Financial Services Committee, but Grey says there are plans to reintroduce it this year.

DeSantis and other CBDC opponents most likely agree with Grey that we should replicate the privacy of cash in digital form—after all, they claim to be defending Americans against a financial surveillance state. But whereas Grey is advocating for a government-controlled system, they seem to prefer something more like decentralized cryptocurrency networks, which are not controlled by any central authority.

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