A recently unveiled bill would allow the U.S. Treasury to issue a digital version of the dollar. The Electronic Currency and Secure Hardware Act was introduced March 28 by Rep. Steven Lynch (D-Mass.), chair of the House Financial Services Committee’s Task Force on Financial Technology.
The program initially would be unveiled as a two-phase pilot to assess the ability of e-cash technologies to incorporate the security and functionality safeguards that are generally associated with the use of physical currency. The first phase would include at least three “proof-of-concept” pilot programs to determine the initial feasibility of e-cash design and deployment. The second would consist of at least one large-scale “Field Test” pilot program deployed to a segment of the American public.
Lynch’s bill requires that e-cash be interoperable with existing financial institution and payment provider systems and be able to execute peer-to-peer offline transactions and be directly distributed to the public via secured hardware devices. “It is absolutely critical for the U.S. to remain a world leader in the development and regulation of digital currency and other digital assets,” Lynch said.
The pilot program could be undertaken in partnership with nonprofits, universities, insured financial institutions, fintech firms, nonbank payment providers, and other entities. The proposal differs from a potential central bank digital currency that the Federal Reserve is looking into, which would allow for transactions to be recorded on a public ledger or blockchain.
“E-cash must also be distributed through secure hardware devices that are secured locally via cryptographic encryption or other similar technologies and cannot contain personal identifiable information or be subject to surveillance, transactional data collection, or censorship-enabling features,” Lynch noted.
The bill comes shortly after President Joe Biden issued an executive order, a sign that his administration is placing a high priority on implementing a CBDC. Currently, 87 countries representing more than 90 percent of global GDP are exploring a central bank digital currency. Nine have already fully launched a digital currency. Also, consumers are already flocking to digital currencies: In 2021, the market capitalization of all cryptocurrencies reached a record $2 trillion, and there are almost 10,000 different cryptocurrencies. The Fed believes the central currency could preserve the dominant international role of the U.S. dollar in the face of this market disruption.