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Opinion
Lev Menand and Morgan Ricks

A U.S. Digital Dollar Should Serve the Public, Not Banks

Americans shouldn't settle for a "skim milk" version of a central bank currency that's watered down to benefit financial institutions.

China’s new digital currency provides instant transactions with no fees.

China’s new digital currency provides instant transactions with no fees.

Source: STR/AFP

The Federal Reserve last month released a report about how the U.S. might update its currency for an “age of digital transformation.” While the long overdue assessment doesn’t reach a conclusion on whether a new digital dollar would be a good idea, the way it breaks down the issues repeatedly confuses the interests of the financial sector with those of the American public. This country needs a digital dollar that serves ordinary households and businesses, not banks and financial technology companies looking to set up new tollgates on the highways of American commerce.

The Fed loses sight of the public interest in a number of ways. It insists that private firms should have a role in providing any new federal digital dollar. It also expresses “concerns” that a digital dollar might lure people and businesses away from bank deposits, which would be costly for banks. To avoid this, the Fed suggests designing the digital dollar to be “less attractive” — for example, by not paying any interest.