Money, as we know it today, may not be the same in a few years. The emergence of alternatives like Bitcoin is forcing governments to rethink the existing monetary system.
In one such move, members of the US House of Representatives pushed for a government-backed digital dollar. Representative Stephen Lynch, with support from other Democrats, introduced the Electronic Cash And Secure Hardware (ECASH) bill on Monday.
Among other things, the bill mandates that Secretary of the Treasury Janet Yellen test an electronic version of the US dollar called the e-cash.
What is E-Cash?
The proposed ECASH bill requires the Treasury Department to establish an Electronic Currency Innovation Program (ECIP). The goal of ECIP is to experiment with a series of pilot projects around a government-issued digital legal tender called “e-cash.” If the bill is passed, the Treasury would have to initiate the pilot within 90 days and deploy e-cash to the public within four years.
E-cash will emulate the physical dollar but can be used without private intermediaries like banks and credit card companies—a key differentiating factor from other digital currencies. The primary objective of e-cash is to preserve the privacy of its users and to make operation without access to the internet possible.
Other important provisions of the ECASH bill include:
- Coordination mechanism: If the bill becomes an Act, it will set up a Digital Dollar Council, headed by the Treasury Secretary, to coordinate with various government agencies, including the Federal Reserve.
- Research and development: ECIP is tasked with creating the necessary infrastructure for e-cash. For example, hardware wallets for the secure storage of e-cash.
- Prioritize privacy: The resulting Act will institute an independent Monetary Privacy Board to ensure privacy preservation and civil liberties protection concerning e-cash usage.
- Funding account: A bank account will be opened with the Federal Reserve to fund the e-cash program. The Fed’s Board of Governors will manage the liquidity side of things.
Is E-Cash the Same as a CBDC?
The ECASH bill clearly draws a distinction between Central Bank Digital Currencies (CBDC) and the proposed digital dollar.
A CBDC is a digital form of the fiat currency issued by a country’s central bank, and it is based on the blockchain technology used for cryptos.
On the other hand, e-cash will be issued by the US Treasury Department and not the Federal Reserve, America’s central bank. Besides, it will neither be built on blockchain technology nor controlled by a central authority. Thus, technically, e-cash is not a CBDC.
“The ECASH Act will complement, and advance ongoing efforts undertaken by the Federal Reserve and President Biden to examine potential design and deployment options for a digital dollar,” Stephen Lynch explained, referring to President Biden’s recent Executive Order on Cryptocurrencies, which includes researching CBDC as an action item.
Benefits of E-Cash
E-cash combines the “privacy-respecting feature of physical cash” with the benefits of digital currencies. According to Congressman Lynch, e-cash will have minimal transactional data-generating properties, ensuring anonymity in peer-to-peer transactions.
Besides data privacy and consumer protection, e-cash brings out the following benefits:
- Offline transactions secured by hardware devices enable fast and effortless transfer between people and businesses.
- Financial inclusion for people without bank accounts; e-cash will mean better accessibility to the monetary system for them now.
- More security, as banks may fail or face liquidity issues, the US government-issued e-cash is unlikely to.
What Should Investors Know?
US Treasury Secretary Janet Yellen has had a change of heart about cryptocurrencies. Yellen, previously a staunch critic of crypto, has admitted that there are benefits to the emerging asset class. “Crypto has obviously grown by leaps and bounds, and it’s now playing a significant role, not really so much in transactions, but in [the] investment decisions of lots of Americans,” she conceded.
Yellen isn’t alone. Nearly 90 countries around the world, including India, are now experimenting with some form of digital currency. The tabling of the ECASH bill indicates that digital forms of currencies, such as CBDC, are part of this larger trend. E-cash, in particular, is an exciting concept, as it addresses the biggest flaw of CBDCs: the lack of privacy.
This trend and various other factors—like Russia planning to accept Bitcoin for oil and gas payments—have played out positively for the crypto market. The total crypto market cap surpassed $2 trillion for the first time this week. And Bitcoin, Ethereum, and other popular altcoins have gained handsomely over the past few days.
Disclaimer : Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. The information provided in this post is not to be considered as investment/financial advice from CoinSwitch. Any action taken upon the information shall be at user's own risk.
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