As the IRS mails the first wave of the coronavirus stimulus package, one can’t help but wonder how many problems will surface as there will surely be people who fail to receive their cheques on time, if ever. In that line of thought, one can’t also help but wonder how much easier it would have been for the government to distribute financial resources to citizens if there was already an established central bank digital currency (CBDC).
In a previous article I talked, in length, about central banking and the pros and cons of implementing a central bank digital currency. One of the pros is the easy way for the central bank to credit/debit citizens with money. Be it a blockchain-based CBDC or an account-based one, distributing a stimulus package would have been a child’s play compared to what’s being done at the moment.
The current situation
While the government will surely manage to credit some of its citizens’ bank accounts directly, many won’t receive the funds like that due to bureaucratic obstacles such as failing to file specific documents to provide the necessary info to the government needed in scenarios such as this.
Thus, many will receive their stimulus cheques via mail. This creates a multitude of problems including cheques being lost or cheques being sent to the wrong addresses. But even if everyone received their cheques as expected, which is highly unlikely, people would then have to go to their banks to cash in the cheques.
With the current situation in place, this will most likely result in endless lines of people, standing 6 feet from one another, waiting in front of the bank for their cheques to be cashed in. There are some banks that allow payment with cheques online, but not all of them do.
Though questionable in their long-term efficacy, these coronavirus stimulus packages appear necessary since it is the government that has put its citizens in the situation they’re in. The complete lock down has caused an immense drop in economic activity as businesses are closing doors left and right – not everyone can work with a laptop from home.
Thus, it is absolutely necessary that there are as few problems as possible as these financial resources are being distributed to people who need them desperately to cope with the current situation.
What could be
Though I firmly believe that more research is still required if a CBDC is to be done right, meaning it being designed in a way that healthily balances its pros and cons, in situations like these, I can’t help but wonder how much easier it would have been for the government to handle the distribution of the coronavirus stimulus package.
While the U.S. is obviously not ready to implement a central bank digital currency, maybe in the future, once it does so, people will look back to this day and chuckle at the cheques thing. I completely understand that the government is operating as best it can, given the current situation, which is why this is not really a criticism of how the stimulus packages are being distributed.
That being said, this is a criticism of the lack of action the U.S. government has taken when it comes to researching a central bank digital currency. The United States is meant to set the pace with anything when it comes to innovation, but with digital assets, it has fallen far behind. The country’s stance on these new financial instruments was made very clear with how they handled the emergency of Libra.
In any case, imagine a scenario where citizens have an account directly with the central bank, or, in a more secure case, have accounts with narrow banks that are somewhat of a proxy of the central bank (I explain this case more thoroughly here). Since all of this is still in the spectrum of speculation, meaning no one really knows how or what a CBDC system would look like, all I can imagine is a simple user interface where employees under the Federal Reserve Board would execute a process that would credit everyone eligible for a payment as part of the stimulus package.
This is surely an oversimplification of what would actually happen in the future if we find ourselves in a similar situation and central bank digital currencies are no longer just a concept. Though the entire process of proposing and approving a stimulus package might be quite complex, largely due to partisanship, the distribution process itself should be fairly close in its simplicity to the example I described above. Perhaps one day.