What Is a Digital Dollar, Why Should You Care, and Is It Even Worth It?

New Roosevelt Institute report argues we don’t need a central bank digital currency, but an improved financial system for the 21st century

May 11, 2022
Ariela Weinberger
(212) 444-9130

Multiple factors are driving the surge of interest in central bank digital currencies (CBDCs), including the rise of stablecoins and the financial risks associated with them, China’s issuance of its own CBDC, and record fiscal transfers in the wake of the COVID-19 pandemic. Yet, debate abounds about what a CBDC is and what, when defined, it might offer to various stakeholders—American consumers, the banking and finance sectors, and the United States as a geopolitical actor. 

Digital Dollars: Critical Design Choices and Effects of a Central Bank Digital Currency, a new Roosevelt Institute report, attempts to cut through the confusion and hype around CBDCs by laying out the contours of the existing debate and analyzing the competing proposals with a particular eye to maximizing financial inclusion and equity. Authored by Chris Hughes,senior adviser at the Roosevelt Institute, the report argues that whether or not Congress and the Fed ultimately choose to issue a CBDC, the US financial system needs improvement. 

“As the conversation about whether our government should introduce a CBDC continues to accelerate, policymakers must remember: We already have a financial system that uses a widespread digital dollar,” said Hughes. “Instead of spending time and resources on CBDC, the Fed should use tools and systems already in place to build a monetary and financial system for the 21st century. For example, the Fed might develop and expand the emerging FedNow payment system, call for enhanced regulatory power over the emerging stablecoin market, and take on a serious study of a public option for banking like FedAccounts.”

To lay out the argument against the Fed issuing its own CBDC, the paper is organized as follows:

  • Defines what we mean by a central bank digital currency.
  • Explains the rush of interest in CBDCs. 
  • Explores the range of possible CBDC design decisions. 
  • Examines the other policy tools that might be leveraged to accomplish the same meaningful goals.

“Maintaining today’s banking system will inevitably lead to a slower, less-inclusive, less stable banking system in the near future,” said Hughes. “Let’s be clear, preservation of the status quo will hurt American consumers, especially those from under-banked marginalized communities, and the geopolitical influence of the United States. Choosing not to issue a CBDC does not mean that the Fed should not act. Rather, the Fed and Congress should use existing authority and policy tools to achieve reform.”

Learn more about how FedAccounts would entitle all US citizens, residents, and domestically domiciled businesses and institutions to basic banking services with the Fed here

About the Roosevelt Institute

The Roosevelt Institute is a think tank, a student network, and the nonprofit partner to the Franklin D. Roosevelt Presidential Library and Museum that, together, are learning from the past and working to redefine the future of the American economy. Focusing on corporate and public power, labor and wages, and the economics of race and gender inequality, the Roosevelt Institute unifies experts, invests in young leaders, and advances progressive policies that bring the legacy of Franklin and Eleanor into the 21st century.

To keep up to date with the Roosevelt Institute, please visit our website.

About the Author:

Chris Hughes is a senior fellow at the Institute on Race, Power, and Political Economy at The New School and the co-founder and co-chair of the Economic Security Project. His work focuses on contemporary issues in progressive political economy, including the history of central banking, antitrust policy, guaranteed income studies, and tax policy. He is a senior advisor at the Roosevelt Institute.

Hughes has a master’s in economics from The New School of Social Research and graduated from Harvard magna cum laude with a bachelor’s in history and literature. He was a co-founder of Facebook.