Digital Dollar Whitepaper Released! Former CFTC Chairman: The Dollar Must Be Tokenized

Countries including China, South Korea, the Netherlands, France, and Sweden are all conducting pilot experiments on Central Bank Digital Currencies (CBDCs). Among them, China is the most proactive in its development and currently has the fastest progress globally. The Bank for International Settlements has also called on countries worldwide to assess the feasibility of CBDCs. The Digital Dollar Project in the United States also released a white paper last week, emphasizing the necessity of tokenizing the US dollar.

Digital Dollar Should Be More Than a Medium of Exchange

Although the United States has previously denied the necessity of a CBDC, with the rapid development of various countries (especially China) and the severe impact that the COVID-19 pandemic has had on the United States in recent months, there has been a push for the use of a digital dollar to better implement the government's relief plans. The Democratic Party in the U.S. Congress and Senate introduced a relief bill for COVID-19, advocating for the use of a digital dollar. In this environment, the promotion of the digital dollar has once again surfaced in the United States.

In mid-April this year, J. Christopher Giancarlo, a senior legal advisor at Willkie, Farr & Gallagher and former chairman of the U.S. Commodity Futures Trading Commission (CFTC), wrote an article delving into the digital dollar. While these senators in the bill advocate for the use of the digital dollar, Giancarlo states that the suggestions made are just for the distribution of government relief payments and not as a true central bank digital currency (CBDC).

The "Digital Dollar Project," launched earlier this year, was co-founded by Accenture Global Consultancy and the Digital Dollar Foundation. The project aims to facilitate exploration and dialogue between public and private sector leaders regarding the U.S. central bank digital currency (CBDC). Key technological breakthroughs in the U.S. from the past (such as landing on the moon or establishing the internet) have typically been achieved through a series of collaborations between private and public sectors, which is a unique historical feature to some extent in the U.S. The Digital Dollar Project aims to create the infrastructure needed for a well-structured, durable, and universal digital dollar, much like past technological breakthroughs, which requires mutual cooperation between the private and public sectors to achieve. Giancarlo points out:

"The 'Digital Dollar Project' proposes something more fundamental, a new form of dollar attachment, a digital dollar residing on personal mobile devices with the same legal status as dollars in wallets. For government agencies responsible for distributing crisis benefits to vulnerable groups (especially those who cannot access banking services), sending digital dollars directly to smartphones will save administrative time. Moreover, during a pandemic, the virus can spread through physical cash and coins, making it much more convenient and safer to purchase food and necessities with digital dollars, which could be a lifesaver."

Digital Dollar Whitepaper

Last week, the Digital Dollar Project released its first Digital Dollar Whitepaper. The payment system described in previous House bills was based on an account structure with not many technological breakthroughs. In simple terms, users just open a digital dollar wallet (similar to opening an account at a central bank) and make payments to others through this wallet, with the Federal Reserve merely managing this public institution for the payment system.

However, the Digital Dollar Project embraces different design principles. They believe that an account-based system is insufficient, and the digital dollar must take a "tokenized" form. The whitepaper provides the following definition for "tokenization":

"Converting assets, commodities, rights, or currency into a form that can prove and transfer ownership."

The whitepaper suggests that a tokenized solution using Distributed Ledger Technology (DLT) to achieve a true "digital promissory tool" is the best way to maintain infrastructure flexibility and future commitments. On the other hand, it can be seen from the content of the whitepaper that, like the Digital Currency Electronic Payment (DCEP) of China, the digital dollar will also adopt a dual-layer architecture design.

A New Era of Currency

The digital dollar is not just a payment infrastructure for the federal government, financial institutions, or businesses, but a much larger project. The digital dollar represents global confidence in the U.S. dollar and the credit debt of the Federal Reserve, which is far more significant than the institutional debt of banks like JPMorgan Chase.

Giancarlo points out that the digital dollar based on Distributed Ledger Technology (DLT) is more complex than physical cash as it requires transactions in the payment system to include all information from both parties, including buyer identification, account balance verification, and confirmation of transaction legitimacy to prevent double-spending. Nevertheless, the digital dollar has significant potential to become a new financial medium and create new payment channels.

For example, instant peer-to-peer payments, real-time settlement of transactions, expanding the use cases of the dollar, low-cost and fast cross-border remittances and large payments, granting greater autonomy to economic participants, etc., the emergence of the digital dollar is likely to bring fundamental innovations to the widespread financial system.

Lastly, Giancarlo concludes that the digital dollar is complex and of great importance, not just a simple payment system, and urges relevant entities not to rush into it. The "Digital Dollar Project" is already working hard to plan and study its potential:

"The importance of the dollar globally is valuable and complex, and such a thing (referring to the digital dollar) cannot be hastily realized for a single economic crisis. However, now is the best time to start researching."