Can digital dollars be as anonymous as cash? It's time to find out, say lawmakers
A US House of Representatives bill is proposing a trial of digital dollars that would replicate the privacy and anonymity of physical currency such as coins and notes.
If passed, the 'Electronic Currency And Secure Hardware Act'' (ECASH Act)' would "direct the Secretary of the Treasury to develop and pilot digital dollar technologies that replicate the privacy-respecting features of physical cash."
The ECASH Act "would promote greater financial inclusion, maximize consumer protection and data privacy, and advance U.S. efforts to develop and regulate digital assets," according to an announcement by US representative Stephen Lynch, who introduced the bill.
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Lynch says the ECASH Act would "complement and advance" the current research being undertaken by the Federal Reserve.
"By establishing a pilot program within Treasury for the development of an electronic U.S. Dollar, the ECASH Act will greatly complement and advance ongoing efforts undertaken by the Federal Reserve and President Biden to examine potential design and deployment options for a digital dollar. Importantly, this pilot program will also preserve a role in our financial system for smaller anonymous cash-like transactions which are currently transacted in physical dollars and which have seen a rapid decline in use," he says.
Central Bank Digital Currencies or CBDCs are already being explored by central banks in dozens of countries, including the European Central Bank.
The US Fed is currently investigating the pros and cons of issuing a US CDBC and released a discussion paper in January. It acknowledged that a US CDBC might be more convenient than cash, but would also entail privacy risks compared to cash.
US president Joe Biden last month unveiled an executive order that aims to put the US at the forefront of cryptocurrencies. China is widely considered to be leading CBDCs worldwide, kicking off its pilot in June 2020. According to the Atlantic Council's CBDC tracker, the People's Bank of China had, as of October 2021, issued 123 million individual wallets and 9.2 million corporate wallets, which collectively had been used for $8.8 billion worth of transactions. It's also making headway on cross-border payments.
The Atlantic Council estimates 90 countries' central banks have started research or are piloting a CBDC.
"Of the countries with the 4 largest central banks(the US, the Euro Area, Japan, and the UK), the United States is furthest behind," the council notes.
The Fed acknowledged concerns in a discussion paper if any of these "new CBDCs were more attractive than existing forms of the U.S. dollar, global use of the dollar could decrease – and a U.S. CBDC might help preserve the international role of the dollar."
Lynch also acknowledged this concern.
"As digital payment and currency technologies continue to rapidly expand and with Russia, China, and over 90 countries worldwide already researching and launching some form of Central Bank Digital Currency, 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," saidLynch.
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Rohan Grey, assistant professor at Willamette University College of Law, told CoinTelegraph that the ECASH Act is not similar to any other CBDC initiatives because it isn't underpinned by a central or distributed ledger system – a move that privacy advocates would appreciate because it's just as private as cash.
The bill states the digital dollar should be capable of: "Instantaneous, final, direct, peer-to-peer, offline transactions using secured hardware devices that do not involve or require subsequent or final settlement on or via a common or distributed ledger, or any other additional approval or validation."
The bill asks for the implementation of a two-phase trial that demonstrates a system that can "enforce total balance and transactional activity limits on a per-device basis without rendering such devices vulnerable to surveillance or censorship to third parties including the United States government."