House Democrats Consider Digital Wallets for Crisis Payments (2)

House Democrats want to use digital dollars and digital wallets to speed the disbursement of direct emergency funds to unbanked consumers as part of a Covid-19 economic stimulus plan.

Legislative text (H.R. 6321) issued Monday by the House Financial Services Committee Chairwoman Maxine Waters (D-Calif.) would require large Federal Reserve banks and other financial institutions to provide digital wallets to individuals and joint tax filers eligible for direct governmental emergency payments currently under negotiation in the historic economic relief package.

Peer-to-peer digital currencies, like Bitcoin, typically have faster payment clearance times than traditional payment methods. But the Federal Reserve has been moving towards real-time payments without use of digital currencies over the last several years, and Fed Chairman Jerome Powell hasn’t been receptive to the idea of a central bank digital currency, which would turn the dollar digital and potentially make the Fed more consumer-facing.

Senate Republicans and Democrats, as well as the administration, negotiated a tentative agreement to make one-time $1,200 payment for single adults earning less than $75,000 per year, with payment amounts phasing down in value until hitting a hard cap of $99,000. House Democrats draft legislation obtained by Bloomberg Law proposes paying $2,000 per month to each adult in that income threshold, as long as the current public health crisis lasts.

The House bill would require the Federal Reserve, Federal Reserve member banks, the IRS, and others to create “digital dollar wallets” for the payments, up to $2,000 for most individuals.

Stimulus payments would be disbursed through the Internal Revenue Service by direct deposits, including via the proposed digital wallets, or by check.

Fed member banks with assets greater than $10 billion would be required to support the digital wallets, but would be reimbursed for the cost of doing so.

The American Bankers Association and the Bank Policy Institute, two trade associations that represent banks who would fall under the digital wallet mandate, didn’t have immediate comment.

The Electronic Transactions Association said it would support inclusion of other payments methods as well. “In addition to banks, ETA supports using other modern payments methods like prepaid cards, digital wallets, money service businesses, and P2P services to securely, quickly deliver stimulus money to American consumers,” said Jodie Kelley, the group’s chief executive officer.

Aaron Klein, a former Obama administration Treasury Department official and policy director for the Brookings Institution’s Center for Regulation and Markets, said via email that while he needed more time to review the proposal, “people need access to their funds as fast as possible and in digital forms.”

“The legislation should deal with this by requiring immediate funds availability to any Treasury deposit,” added Klein.

Timing Question

A summary of the House Democrats’ legislative package, circulated Monday, indicated the digital wallets measure is intended to help the unbanking received stimulus funds.

The Covid-19 pandemic and economic shock isn’t the ideal time to create a U.S. digital currency and a broader digital payments infrastructure, said Daniel Gorfine, former chief innovation officer at the Commodity Futures Trading Commission and founding director of the Digital Dollar Project and fintech advisory firm Gattaca Horizons.

“That should happen when the country has proper bandwidth to do so,” Gorfine said.

Trying to implement a central bank digital currency “with the involvement of the Treasury, Fed, and private sector during this current crisis would be very difficult,” he said.