Fed Digital Dollars Are Part of Debate Over Coronavirus Stimulus

Legislation includes tool some believe could reshape how monetary policy is conducted

While it may not make it to the finished coronavirus economic stimulus and support package now being weighed in Congress, there is a push from some legislators to give the Federal Reserve a new tool some believe could radically reshape how it conducts monetary policy.

At issue are so-called digital dollars and the accounts that would hold them. Separate House and Senate bills propose creating these two things as part of a broader effort to reduce the shock of the economic shutdown related to limiting the spread of the coronavirus.

These Fed “digital dollar” accounts would be set up as a way to speed payments to households that need support. As things now stand, the U.S. government lacks the infrastructure to disperse payments widely, and given the nature of the current crisis, speedy action is critical.

The central bank has already taken bold action to support the financial system, including slashing short-term rates to near zero, but almost all of its actions have been aimed at banks and companies. Households have yet to receive any meaningful support.

In the longer run, Fed accounts could also help make monetary policy more powerful and help it bypass a fickle financial system and head right to Main Street. Instead of the Fed taking action to influence market rates, which can be a fraught process, it could offer interest-bearing accounts directly to the public. Then, by changing rates at that level, or even straight up adding Fed-created money to the accounts, it could influence economic decision-making at the household level.

Fed accounts “would be a very significant improvement” in getting money speedily to those who need it most, said Andrew Levin, an economics professor at Dartmouth College who has called for the Fed to launch a digital currency.

Prof. Levin says that in the current situation, it doesn’t matter if these Fed accounts got stimulus funds from the Treasury Department or through money printing directly at the Fed. The main issue is just getting money out the door quickly in a fast-moving crisis, he said.

Even if Fed digital accounts aren’t in place to deal with the current crisis, they can build out the tool kit for dealing with future stress, supporters say.

Julia Coronado, of MacroPolicy Perspectives LLC, along with Simon Potter, the former manager of the New York Fed’s markets desk, wrote in a forthcoming paper about the benefits of the central bank having digital accounts available to everyday people. “Boosting consumer demand directly is likely to be more effective and have better distributional implications than the current approach of boosting asset prices” through asset buying, and “it can be implemented faster than discretionary fiscal stimulus,” they wrote.

The debate over an official Fed dollar, distinct but equivalent to the dollar that now exists, has been brewing for several years, partly in reaction to private systems such as bitcoin. To some extent, Fed digital dollars are as much about payment system infrastructure because most dollars are already electronic.

If legislation does create official Fed digital money, the central bank would have something it has yet to seek actively, even as other central banks are trying out their own digital systems. In February, Fed Chairman Jerome Powell said that there are privacy concerns around a digital currency offered by the central bank and that Americans still have a strong preference for cash.

Peter Schiff VS Brent Johnson: The Future Of The US Dollar

In this video from VRIC 2020 Peter Schiff and Brent Johnson debate about the future of the fiat money specifically US Dollar and the gold standard.

Peter Schiff believes the US market has never been as overvalued and over priced. And one of the major warning signs is we blew up the private equity market. This decades dot.com bubble is the private equity market destruction. This destruction will lead to the decline of the US dollar and eventually a remonetization of gold as the dollar loses its place as the Worlds Reserve Currency.

Peter Schiff’s theory is that Central Bankers around the world are under the false impression that a cheap currency is a good thing because it allows them to export more to the United States. However, the US is broke and can never pay for what it’s buying.

And since America is the largest debtor nation in the world and have more debt than other major countries combined and manufacturing is such a small portion of the US economy, there is a complete dependency on foreign goods.

And Relative to Wealth producing components of GDP no other country on earth has as much debt as the United States.

Add in contingency guarantees such as bank accounts, pensions, brokerage accounts that the US government is committed to funding despite the lack of money to pay for these things.

Combine all of this together and there is the potential for a currency crisis the likes the world has never seen. Schiff thinks this because there is an unrealistic level of belief for the US Dollar.

Schiff thinks the dollar will perform worse than other fiat currencies around the world and that we’re going to remonetize gold as the central asset.

Brent Johnson ultimately believes the same ending but with a different theory on how it will all go down.

Brent’s theory is that MMT is that the government will spend more money into existence and the central banks will want to control of the monetary policy. And that the dollar will go up and people will continue borrowing and buying which will ultimately lead to a massive currency crisis.

Every country in the world has over leveraged their economy and Brent Johnson believes that Central Bankers in every country are making the same bad bets across the world.

Brent Johnson makes note of The Plaza accord and that it was put in place in 1986 to artificially weaken the dollar against the other worlds Fiats because it was too strong. He argues that the dollar will be the the worlds central currency until fiat fails.

Schiff’s theory is “Money Is Nothing” and the value is the production and real goods that a country has. Money just lets you divvy up whats been produced. The wealth of the nation is the productive capacity of that nation.

Schiff also believes that in order to have a strong country you need:
*Factories
*Skilled Workers
*Production

Which are things that the US severely lacks and will pay a massive price for the over dependence on countries that do have these things.

The Canadian economy will benefit from a resource and precious metals boom that will help the Canadian dollar.

Schiff on inflation: Inflation initially pushes up asset prices before consumer prices.

Brent believes that digital currencies could be the future of money and likely will be implemented by most countries in the near future.

Brent and Peter agree that The Gold Standard will happen after a general loss of confidence in fiat currency.

Schiff explains MMT Modern Monetary Theory as the practice of taking Quantitative easing to the extreme. Printing Money without creating prosperity. Democrats will rely on the central bank to fund their spending agenda.

Repo rates have spiked to 9% – the market wants rates higher but Americans have so much debt and American can’t afford to service the debt. And international banks have been accessing the FED repo market to a greater extent than the US domestic markets. Repo rates spiking shows a demand for funding from the US dollars.

Americans have so much debt that the US government has to keep rates low other

Marin Katusa postulates that the highest risk lies in the credit market with debt in triple BBB