It’s All About the e-Benjamins 

The Fed’s Tentative First Steps Toward a Digi-Dollar 

On the one hand, it’s good. 

On the other hand, it’s bad. 

And that, ladies and gentlemen, is pretty much everything you need to know about the Federal Reserve’s recently released, much-anticipated report on the possibility of maybe one day thinking about potentially creating a digital dollar to replace the paper bills in your wallet. 

Look, here’s the reality: A digital dollar is a done deal.  

One day, in the not-too-distant future, the U.S. government will swap out paper cash for a central bank digital currency, or CBDC—a solely digital version of the dollar based on the same blockchain technology as bitcoin, Ethereum, and all other cryptocurrencies. 

Sure, I mean, that’s not official, of course. Uncle Sam has not deputized me to make such definitive proclamations. The Fed and Sammy have to go through this performative hang-wringing/thoughtfulness phase before then announcing what is already a fait accompli, “Hey, guess what, we’re creating a digi-dollar!” 

Why do I say this?  

Well, we will circle back ‘round to that in a bit. 

First, the report. 

On the pro side of the ledger, the Fed noted that its “initial analysis suggests that a potential U.S. CBDC…would best serve the needs of the U.S. by being privacy-protected, intermediated, widely transferable, and identity-verified.”  

It also noted that a digi-dollar would spur innovation, expand access to the financial system, and support faster and cheaper payments, including cross-border payments, which are a very pricey, time-intensive 20th century relic. 

On the negative side of the ledger: “Cryptocurrencies…remain subject to extreme price volatility, are difficult to use without service providers, and have severe limitations on transaction throughput. Many cryptocurrencies also come with a significant energy footprint and make consumers vulnerable to loss, theft, and fraud.” 

That list of cons is outdated and dishonest.  

Let’s address them point by point… 

A CBDC, by definition, would be a so-called stablecoin and it would have zero volatility even when other cryptos are sailing or sinking. That is entirely the point of a stablecoin CBDC. I mean we already have crypto stablecoins that track the U.S. dollar very, very tightly. 

Difficult to use? Ummm, I can trade crypto today on PayPal with a single click. I can teach a semi-literate poodle with attention deficit disorder to do the same. 

Significant energy footprint is a media/environmentalist fabrication. Much of the blockchain has moved/is moving to greener processes. For instance, this year Ethereum is shifting to a much more efficient model that is expected to reduce its energy expenditure by 99.95%. So, it is easy to design a cryptocurrency that has a low carbon footprint.  

Plus, the existing bitcoin/Ethereum mining farms are increasingly showing up now in countries with access to geothermal, solar, and hydro power—so, you know, not the footprint that haters claim. (Also, has anyone ever considered the energy footprint of legacy banking? All the natural resources used to build banks…to power and cool/heat millions of bank lobbies…all the gasoline burned as employees and customers travel to and from banks.) 

Loss, theft, fraud. I am so glad loss, theft, and fraud doesn’t happen with real dollars. That’s a huge relief. 

Moving on… 

The reason I say a digi-dollar is done deal is because 91 countries have already launched, developed or are now researching CBDCs.  

The big kahuna on that list is China, which is lightyears ahead of the Federal Reserve. 

And that’s a problem about which the Fed is quite cognizant. 

Right now, a great proportion of the global economy flows through U.S. dollars. That’s an expensive process because of the currency conversion fees of changing, say, Mexican pesos into dollars that a Chinese firm then needs to convert into yuan. Lots of time involved in that process, too. Days, if not a week.  

But as more and more countries launch CBDCs, they no longer need the dollar. A Mexican buyer could send e-pesos directly to a Chinese manufacturer, who would then convert directly into e-yuan. The process would take seconds, and the costs would be minimal—the equivalent of a few dollars. 

When the world doesn’t need U.S. dollars, the dollar is in trouble. 

Dollar demand sinks and the value of a greenback declines. 

The Fed recognizes that China’s CBDC leadership is problematic because it means more countries bypassing the buck. 

But there’s also cost savings for Uncle Sam. 

Digital currencies are programmable. Payments can be designed into “smart contracts” that auto-execute without the need for human intervention.  

For instance, a worker hits 67 and retirees. She fills out her Social Security application online. She’s approved by way of a smart contract that sees Mary Alice McGillicuddy, Social Security #123-45-6789, is eligible for retirement benefits. She is automatically dumped into the pool of recipients, and another smart contract insures that her monthly benefits land in her bank account/digital wallet. 

There goes a ton of federal workers that are no longer necessary on the payroll. 

And then there’s the nearly $1.1 billion cost of actually printing bills and coins. 

So, yeah, the digital dollar is coming. 

That Federal Reserve report…it’s simply theater. It’s part of that hang-wringing/thoughtfulness phase I mentioned. 

But sooner rather than later, hang-wringing will turn to planning and then implementation.  

Then it’s all about the e-Benjamins.