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The Coming US Digital Dollar (Part 1) — What it is, and Why it Matters



The introduction of a “US digital dollar” — the creation of which just last year seemed far away, but now under serious consideration — represents nothing short of a tectonic reconfiguration of money and the global financial system.

The US dollar is the world’s financial leviathan; a singularly dominant international trade and reserve currency. Any substantive changes to it will significantly alter the global economic landscape and impact billions of people around the world.

A US digital dollar could also have significant ramifications for the cryptoasset industry, particularly cryptocurrencies such as stablecoins and bitcoin that are vying for wider monetary use.

This three-part blog series will:

  • Part 1: Describe the history of the US digital dollar and define central bank digital currency, as well as the essential need to understand how money is created and how a US digital dollar resembles and differs from cryptocurrency and commercial bank money
  • Part 2: Analyse key differences and tradeoffs of leading US digital dollar design proposals currently being debated and considered
  • Part 3: Discuss the role of infrastructure surrounding and supporting a US digital dollar, particularly digital wallets and their various design tradeoffs

Bill Gates famously said we often overestimate the amount of change that occurs in the short-run.¹ But every once in a while seismic shifts can be seen in a single year.

Just over twelve months ago few thought the creation of a new US digital dollar — a broadly held and transacted central bank digital currency (CBDC) — would soon be on the policy and legislative “front burner” in Congress, the Federal Reserve, and other regulatory bodies. And there were good reasons for this skepticism.

In January 2019 the Bank of International Settlements, following a survey of its central bank members, reported there was no rush by most leading central banks to broaden central bank digital currency due to uncertain benefits and risks. Many central banks previously explored technical aspects of implementing broad CBDC by testing blockchain or distributed ledger technology and were left concerned about the maturity and capabilities of the technology for use at scale. And for countries that have already implemented “faster payments”, or were working to do so in the case of the Federal Reserve with FedNow, there were questions about what improvements CBDC would offer in terms of payment efficiencies and other conveniences.

In sum, the state of play last year at the Federal Reserve, as well as many of the world’s other leading central banks, was that they were happy to continue studying the concept of broad CBDC, but they did not see compelling reasons to charge ahead anytime soon.

The “no rush” attitude towards broad CBDC was also not exclusive to central banks.

Many commercial banks have been lukewarm or outright hostile towards the idea of introducing broad CBDC. Banks reasoned that consumer and non-bank business access to CBDC would erode the exclusive, privileged position of commercial banks, which have long been situated advantageously between central banks and all other economic actors.

Concerns over more frequent and larger bank runs have been a key impediment to creating broad central bank digital currency

Another key concern expressed by bankers, and a conundrum that is by no means generally believed to be solved, is the risk that commercial bank customers would “run” with their deposits from relatively more-risky commercial banks into the tender arms of “risk-free” central banks.² In other words, the existence of broad CBDC would risk creating or exacerbating a destabilizing financial panic.

But over the past twelve months there were several major developments that together have radically shifted forward the probability of introducing a broadly held and transacted US digital dollar:

  • Facebook’s ambitious global Libra currency was announced in mid-June 2019, and it would be underpinned by blockchain technology deemed sufficiently robust to service Facebook’s billions of users
  • Purportedly in response to Libra, China accelerated work and began testing in April 2020 its long rumored digital yuan, the DCEP (Digital Currency Electronic Payment)
  • US-China strategic competition and geopolitical tensions escalated
  • The coronavirus pandemic struck, painfully demonstrating the antiquated nature of US monetary and financial infrastructure (eg slow and inefficient physical checks were relied upon to distribute relief funds to ~70 million Americans)
Facebook’s Libra and the coronavirus have catalyzed consideration of a US digital dollar, but the growing strategic rivalry with China arguably provides the most significant and persistent motivation

While the sea change in expectations and timing around a US digital dollar may have been largely driven by the above developments, a fifth factor has also been at play: the ongoing growth in stablecoin and cryptoasset use, which present ever-growing competition to traditional fiat currencies.

In late-March US digital dollar legislation was first introduced in Congress, and a subsequent growing stream of Congressional testimony, policy research papers, and various lobbying initiatives and proposals indicate growing momentum behind the creation of a US digital dollar.

However, there remain very different views on what form a new US digital dollar should take, and many still question whether one should even exist.

To understand this debate it is necessary to first define at a high level what is meant by a US digital dollar beyond its one-line definition: A broadly held and transacted central bank digital currency.

The interest in a US digital dollar, and central bank digital currency more generally, was inspired early-on by the success of cryptocurrencies like bitcoin (BTC) and its underlying technology. Some US digital dollar design proposals would incorporate technology pioneered by bitcoin and other cryptocurrencies.

Understanding the reasons behind bitcoin’s growth, and how a US digital dollar would resemble and differ from bitcoin, is a helpful starting point on the journey to understanding the US digital dollar.

By also understanding the confusion surrounding cryptocurrencies like bitcoin we can shed light on the confusion surrounding the US digital dollar.

Bitcoin has been both wildly successful and confusing

Bitcoin has reliably operated for over 11 years now, and surveys show awareness of bitcoin registering at over 80% in many countries. Tens of millions of people around the world own bitcoin, and it has a market value at present of approximately ~$175 billion USD.

A non-exhaustive list of reasons cited for bitcoin’s success and growth includes:

Which of bitcoin’s features will make their way into the final US digital dollar design is a subject of significant debate and something we will cover more in Part 2 of this series.

What can be confidently forecasted is that most bitcoin design characteristics are highly unlikely to be copy/pasted into a US digital dollar. For example, some feel strongly that a US digital dollar should be similar to bitcoin in one very important way — as a bearer instrument — but there is also significant resistance to this characteristic. (The US digital dollar serving as a bearer instrument is a concept we return to in a later section below)

Overall, limited technical feature overlap and other factors (eg US dollar’s status as legal tender) make it unclear how much direct competition would exist between a US digital dollar and bitcoin.

While it is no longer credible to completely dismiss bitcoin’s extraordinary success, the vast majority of people still (quite understandably) do not yet use bitcoin, and this is due at least in part because they find cryptocurrency to be confusing.

Indeed, the way bitcoin is primarily used today — less as a currency for payments and more as a scarce, “hard” asset that is frequently compared to gold — has led some including former-Bank of England Governor Mark Carney to state that bitcoin is misleadingly labeled when referred to as a currency. Instead of being called “cryptocurrency”, Carney and others believe a more accurate classification label for bitcoin is “cryptoasset”.

In addition to its inconsistent taxonomy, the confusion surrounding cryptocurrency is partly due to the complexity behind the many advanced technologies cryptocurrencies employ, such as cryptography, economic game theory, and distributed ledgers. New jargon (“blockchain technology”) and mumbled explanations probably don’t help either.

But arguably the biggest reason why many find cryptocurrency so confusing is because it relates to money.

But arguably the biggest reason why many find cryptocurrency so confusing is because it relates to money.

In my experience speaking and teaching economics and cryptocurrency in graduate and executive education programs over the past decade to a wide range of audiences across the world, I have found that a significant majority (including many working in financial services) do not fully understand how money comes into existence.

This lack of prior monetary knowledge is not the fault of the general populace; monetary basics are often not only excluded from secondary education, but also inexcusably from some introductory economics classes.³

While the blame for our financial illiteracy across the population largely rests with educators, media, policymakers, and perhaps others in leadership positions, the fact remains that our generally poor financial literacy raises significant challenges for many in understanding both cryptocurrency and central bank digital currency.

In short, if you do not first understand the basics of how money is created it will be very difficult to grasp both bitcoin and the US digital dollar.⁴

Now, it is true that most people generally know that money in the form of the coins and banknotes in our pockets are created (minted and printed, respectively) by governments and central banks. This type of money can be called central bank money.

But only a small fraction of people are aware that central bank money represents a relatively small percentage (often <10%) of the total money supply in a given country.

In fact, the vast majority of money (>90% in many countries) is created when it is lent into existence by commercial banks when they make new loans, such as home loans.

This second type of money — the vast majority of money — can be called commercial bank money.

Commercial banks, which are generally privately owned for-profit institutions, create this new money by simply updating what can be thought of as an internal corporate spreadsheet that records a) how much money the bank has created and b) who owns/owes what.

Understanding that commercial banks create a different type of money from what central banks create is a crucial point in understanding the US digital dollar, and worth repeating.

To recap, there are basically two different types of money:

  • Commercial bank money (eg the electronic money in your online bank account)
  • Central bank money (eg the physical currency and coins in your wallet/pocket⁵)

A US digital dollar would exist alongside banknotes and coins and be another form of central bank money.

The fact that people and businesses can interchangeably use both commercial bank created money and central bank created money in various settings (a principle called fungibility) is another reason why many people are not aware of any distinction between the two.

For example, when you go to most stores and make a payment you can often either pay for your goods with physical cash (central bank money), or with electronic funds using a debit card or contactless mobile phone payment (commercial bank money).

So if the two different types of money can effectively perform identically in the same setting (purchase of most goods and services) what really are the fundamental differences between the two, and are those differences truly important? The short answer to the latter is yes, and addressing the former requires some explanation.

Bearer instruments like banknotes and certain bonds confer ownership and transactional control to the holder irrespective of whether the financial instrument was acquired legitimately

Beyond the tangible differences in their physical (central bank) and electronic (commercial bank) makeup, a key difference is the bearer nature of central bank money.

Similar to bitcoin, if you have possession (legitimate or wrongful) of central bank printed cash or minted coin, then you have the power to spend that money. The holder (bearer) of the central bank money has control, and when bitcoin and cash transactions are completed the transaction can be said to have “settlement finality”.⁶ While a lengthy discussion of this topic is beyond the scope of this post, suffice it to say that settlement finality (or the lack thereof) has massive implications for the financial system.

In contrast, anyone who has had a debit card payment surprisingly blocked at the point of sale, perhaps for anti-fraud reasons, understands that banks must first grant permission for commercial bank money to be spent. With commercial bank money the bank has control, and access to commercial bank money networks have sometimes been controversially revoked.

In contrast, a bearer instrument like cash or bitcoin is permissionless, meaning its use does not require prior approval by a third-party like a bank.

Commercial bank money transactions can also be reversed, sometimes weeks or even months after the point-of-sale transaction, as frequently occurs in merchant chargeback disputes.⁷ The lack of settlement finality inherent in commercial bank money transactions can lead to controversial and painful situations where banks and payment firms withhold customer money that has been paid to businesses for goods and services already rendered.⁸

Just because you have commercial bank money deposited at a bank also does not mean you will be allowed to withdraw all your funds on demand. Related but separate to this point is the earlier mentioned topic of bank runs, which further illustrate important differences between commercial bank and central bank money.

As we saw in the Great Depression, and more recently in 2007 with Northern Rock bank in Britain, 2008 with Bear Stearns and Lehman Brothers, and Cypriot banks in 2013, commercial and investment bank customers occasionally grow concerned the bank will become insolvent and “run out of money”, and rush to withdraw funds. Recently, during the early days of the coronavirus pandemic in March of this year we saw evidence of a “bank jog” in the US, UK (which having recently transitioned to plastic notes had to redeploy paper £20 notes to cope with withdrawal demand), and elsewhere.

In contrast with commercial banks, which maintain a relatively small percentage of central bank money on hand at any given time relative to customer deposits (liabilities), central banks need not run out of money as they have the power to print, in central bankers’ own words, an “infinite” quantity of new money.

Finally, and perhaps most controversially, central bank money offers a much greater degree of accessibility and privacy than commercial bank money. Cash transactions need not be recorded or publicly broadcasted to third parties, and a pre-approved account at a third party institution is not required to transact in physical central bank money.

In contrast, most commercial banks require proof of identity and other information to open a bank account and/or apply for payment cards, and transactions are recorded and screened to ensure compliance with regulations. Commercial banks may share your financial data with others, and data breaches have resulted in private financial data becoming exposed to criminals, hostile nation states, and others.

At a high level, a US digital dollar can simply be thought of as a way to extend the properties of physical central bank cash and coin to a digital instrument.

While using a central bank digital currency like a US digital dollar may feel very familiar and similar to people who already use commercial bank money via debit cards or contactless payments, make no mistake that a US digital dollar presents a radically new proposition. So much so, in fact, that many will attempt to undermine its creation, or vigorously fight for and against various features or design characteristics.

But the benefits of a broadly transacted US digital dollar have not just become harder to ignore.⁹ Increasingly, a US digital dollar is viewed not only as inevitable, but necessarily imminent.

While perhaps too early to pass ultimate judgement on the government’s COVID-19 response, it already is clear that the lack of a US digital dollar had a severe negative impact on the ability of the government and Federal Reserve to address the current pandemic.

A US-government supported digital dollar (and wallet software) would have been extremely helpful in meeting the goal of rapidly deploying financial assistance to hundreds of millions of American citizens during this crisis. Beyond speed, a US digital dollar would also offer a host of other benefits compared to mailing checks and other payment methods, including:

  • Efficiency: Reducing the cost of payment delivery, which may run into the tens of millions with postal costs, etc. for checks.
  • Financial inclusion: Facilitate payment to individuals lacking access to bank accounts or low-cost check-cashing services.
  • Support the most vulnerable: Help ensure payment to some of those most in need who lack a physical mailing address, or those who have relocated recently (eg students).
  • Hygiene: Encouraging digital forms of payment may help reduce the rate of virus transmission as compared to cash and check use.
  • Efficacy: The receipt and use of digital payments can be more easily tracked to ensure individuals have received financial support and solve the significant “lost check” problem.

Such benefits, which are arguably just the tip of the total US digital dollar benefits iceberg (eg helping address unwanted aspects of the informal economy), combined with the need to respond to competitive challengers like the digital yuan, Libra and decentralized cryptocurrencies like bitcoin, make the case in favor of a digital dollar extremely compelling.

But what kind of US digital dollar do we want? And how will the many concerns and political obstacles to its creation be addressed?

The different forms a broad US digital dollar may take is the subject of the forthcoming Part 2 in this series, where we’ll analyze the tradeoffs of the leading US digital dollar design proposals currently under consideration, including already existing US digital dollars that select commercial banks, governments and international institutions already hold on deposit and transact with at the Federal Reserve.

For more insights from our research team, go to our Research page and follow our Head of Research, Garrick Hileman on Twitter.



Indian Olympic Medal Winners to Get Free Bitcoin (BTC) and Ethereum (ETH)



The cryptocurrency platform Bitbns intends to open a systematic investment plan (SIP) in digital assets for Indian athletes who win medals at the ongoing Tokyo Olympics. The exchange will reportedly grant around $2,700 in crypto for gold medal winners.

‘Faster, Higher, Stronger’ And Earn Crypto

The Economic Times reported that Indian athletes at the Olympic Games could receive cryptocurrencies as a gift if they manage to win a medal at the tournament in Tokyo.

The trading venue that will reportedly provide the offer is Bitbns. The first athletes that can get cryptocurrency exposure for free are the winners Mirabai Chanu and PV Sindhu. The former won a silver medal in 49 kg women’s weightlifting while the latter acquired bronze in the women’s singles badminton at the Tokyo Olympics.

Bitbns plans to roll out a SIP account and grant nearly $2,700 in digital assets for Olympic champions, $1,350 for silver medal winners, and $675 for bronze medalists. It will transfer the amount into their accounts, and after completing the Know Your Customer (KYC) norms, the athletes will have exposure to cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH).

The trading venue explained that it would structure the SIP for a 3-5 year period, and thus the medal winners will be able to generate profits in the long term through Bitbns. Gaurav Dahake – the Chief Executive Officer at the platform – noted:


“Bitcoin and Ethereum have been the best-performing assets in the last decade, and have given exceptional returns and we aim to get our winners indulge in this rewarding journey.”

Indians Love Cryptocurrencies

According to a recent research, Indian residents increased their digital asset investments from $200 million in 2020 to $40 billion for the first six months of this year, indicating that their appetite for cryptocurrencies surged significantly.

What is even more impressive is that Indians, who are well-known gold admirers, started switching their investment strategies from the precious metal to virtual currencies. A local investor explained:

“I would rather put my money in crypto than gold. Crypto is more transparent than gold or assets and yields higher returns in a shorter period of time.”

The survey added that the number of people who trade cryptocurrencies in India is 15 million. It significantly surpasses a well-developed country such as the UK, for example, where 2.3 million individuals have entered the market. Sandeep Goenka – the co-founder of the platform ZebPay – revealed the reasons why the second-most populated country saw this massive increase:

“They find it easier to invest in crypto than gold because the process is so much simpler. You go online, you can buy crypto, you don’t have to verify it, unlike gold.”


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Coinbase halts Bitcoin SV trading after yet another 51% attack



Bitcoin SV is in trouble once again after Coinbase announced that it will be halting BSV trading on the platform. This update came on the back of a string of attacks the network has been facing since late June. As per the announcement made by the exchange,

“Due to the 51% attack that has occurred on BSV today we are stopping all BSV trading.”

Bitcoin SV was the target of a massive 51% attack early on Tuesday, an attack which was called “the largest since launch” by Blockchair developer Nikita Zhavoronkov. He further claimed on Twitter that the reorganization was 100 blocks deep and wiped out 570k transactions.

The attack was first brought to the community’s notice by CoinMetrics’ Lucas Nuzzi. Arguing that “some serious hashing power” was unleashed on the network early on Tuesday, he revealed that up to three versions of the chain were being mined simultaneously across pools.

Coinmetrics later confirmed that the firm’s own blockchain security monitoring tool FARUM identified the attack.

The Bitcoin Association also confirmed the incident on Twitter, recommending node operators to mark the fraudulent chain as invalid. It’s worth noting, however, that at the time of writing, the Association had released yet another statement on the same.

It said,

“…. believes that this is the same attacker that previously initiated block re-organisation attacks against the BSV network on June 24 and July 1, 6 & 9, 2021.”

Coinbase’s action made waves in the community. However, such steps are perhaps routine for the network now. In the past, BSV has been dropped by top exchanges like Gemini and Binance. It also saw several exchanges block withdrawals and deposits for the asset as liquidity providers suspended access to the token’s liquidity. This was preceded by more attacks in the last week of June and the first week of July.

As far as Coinbase is concerned, the exchange is yet to reveal when it might restart trading services for Bitcoin SV. With many in the community at sixes and sevens, it’s unlikely it’s going to be anytime soon.

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Looking To Pull An El Salvador, Spain Considers Bill To Allow Mortgage Payments In Crypto



Looking To Pull An El Salvador, Spain Considers Bill To Allow Mortgage Payments In Crypto

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Cryptocurrency and blockchain are becoming quite mainstream as of this year and it’s likely that just about any financial transaction will be able to be completed via the use of crypto in the next few years. Of course, there are bodies pushing against the integration given the lack of regulations and the fact that it could help finance illicit acts.

However, the crypto wave is continuing to grow despite all of the recent adversity. And, according to Spanish paper 20 Minutos, Spain could begin to allow persons to pay their mortgages with crypto pretty soon.

The publication reports that Spanish lawmakers are perusing a proposal that would see to the above. The Digital transformation Law, as it’s called, would make it so that crypto and blockchain become legitimized, while tax incentives are being considered for institutions keen on working under the artificial intelligence umbrella, which would include blockchain tech.

Spain’s incumbent People’s Party is intent on having the country’s banking infrastructure catch up to the times in terms of tech and will promote the use of digital currencies, as well as various other transformative technologies. The proposal suggests that the country’s whole mortgage system should undergo reform, in addition to having crypto payments possible.

El Salvador Took The Lead

This comes on the back of El Salvador’s move to accept bitcoin as legal tender. The Central American nation is very pro-crypto in such regard and it appears they have set the stage for other countries to naturalize digital assets, so to speak.

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Where Spain is concerned, the current proposal advises that banks use blockchain as a means of operating the mortgage system while making use of smart contracts for insurance.

“Introduction into the mortgage system – it also proposes that banks use Blockchain technology to manage mortgages, insurance and speed up compensation – it proposes to extend it to insurance policies, with ‘smart contracts’ with conditions depending on the procedures to be followed, the verification processes and potential incidents.“

El Salvador making bitcoin legal tender was a huge move and we aren’t yet to see the full scope, although the country’s population stands at just 6.5 million so they aren’t expected to have that great of an impact on a worldwide scale. Spain is a different case, however.

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