ONE BANK TO RULE THEM ALLThe accelerating impact of the COVID 19 lockdowns on almost all aspects of Financial Technology globally and locally in the USA has been keenly observed and been a subject of much commentary in the finance and technology spheres. In that context, the coming legal establishment of a new technical monetary tool is laying the foundations for major transformations in the financial landscape in the months and years to come.
The Central Bank Digital Dollar (“CBCD” or “Digital Dollar”) is the revolutionizing tool whose time has seemingly come. The establishment of the Digital Dollar as a legal tender instrument on par with the paper dollar that we are all familiar with was almost finalized as part of the just concluded CARES Act passed in response to the COVID 19 but has now been made center piece of the Automatic Boost to Communities (“ABC”) Act currently making its way through Congress. The Digital Dollar encompasses many of the key elements of Blockchain technology that are available in exotic instruments like Bitcoin or Ethereum and other such “crypto currencies” into a payment platform and a digital coin that has the stamp of official legal tender of the United States. The Digital Dollar also has some significant differences with the blockchain based crypto currencies like BITCOIN in that it will exist around a private ledger controlled by the Federal Reserve, a centralized and closed network, whereas BITCOIN, for example, is completely decentralized and open to new and anonymous participants.
The big leap that the Digital Dollar brings versus the paper dollar is that it can essentially allow every American person or business to have a direct account at the Federal Reserve thereby consolidating functions at the Federal Reserve abs eliminating the need for most of the retail banking services provided by banks and other intermediaries in the paper dollar. For example, a digital payment between a person and a business would immediately complete or reject without the need for a middle man like a Paypal, Square, Visa, or a retail bank. The only role of a bank / financial intermediary in a paper dollar framework that would be transferable to a Digital Dollar would be the role of Wallet Keeper – a tool to help the person or business to keep count of the money and transaction history.
The technical feasibility of these features are very much realizable and in fact a large-scale digital currency pilot is currently being run by the Central Bank of Sweden with full nationwide implementation targeted for as soon as 2021.
All the specific implications for banks, financial intermediaries and retail businesses of the implementation of the Digital Dollar are too numerous to list but for the sake of brevity 2 key implications that would be foundational for information technology planning are:
1.) The elimination of most core services and related fee income performed by retail banks and payment platforms. The federally mandated creation of a digital dollar and a digital wallet – the digital wallet being an account essentially linked to the federal reserve bank – brings with it a reduction or wholesale elimination of operational fees such as minimum balance fees.
2.) Greater Competition to capture and service the customer: although a two tier structure might appear to be in place the tokenization of currency will usher in a wider variety of competitors into the banking sphere. The digital wallet can be provided, serviced and branded by entities whose traditional core business would range from supermarket chains such as Walmart to smartphone makers like Samsung to software platforms with high customer engagement like Lyft or other Restaurant chains.
The work of preparing financial institutions to be competitive and effective in the framework of the digital dollar is something that we at AvistaTech have been doing over the years and we are deeply committed to helping companies that want to leverage the coming digital money framework to explore how they can most productively do so. Given the implications that we’ve outlined previously several areas stand out as critical to staying ahead of competitors namely cloud computing, artificial intelligence and data analytics.
Below are some thoughtful presentation videos covering the topic of Central Bank Digital Currency generally and thus very applicable to the Digital Dollar.
Sweden’s E-krona 2020 Pilot Test
Elements of the Bitcoin format as a basis for broad adoption National Legal Tender Digital Currencies