As public debate intensifies over whether the United States should create a central bank digital currency (CBDC), there is another option worth considering: Treasury accounts. The Treasury Department could, relatively quickly, create digital accounts to provide payment services that would be especially valuable to the unbanked and underbanked. These accounts may not have all the technological advancements of a full-fledged CBDC, but they would be much easier to establish and could be implemented now under existing statutory authority. Importantly, Treasury accounts could immediately improve access to financial services for the millions of Americans who have limited access to banking services today and also greatly facilitate the delivery of federal benefit programs to all Americans. Treasury accounts are not an alternative to CBDCs, but rather a faster and easier way to achieve some of the main goals of those who favor the creation of a CBDC. The creation of Treasury Accounts would represent a concrete step forward in the Treasury Department’s efforts “to unlock the unrealized potential of underserved communities,” an initiative announced by the department as part of Secretary Yellen’s appointment of the first Department Advisor for Racial Equity last fall.
Many believe that a CBDC can be a way to expand financial inclusion. A major proposal known as Fed Accounts – which has drawn support from progressive members of Congress – would create a system of retail accounts at the Federal Reserve that would give all Americans the option of having a bank account at no cost. These accounts could also be used to distribute federal benefits on an expedited basis. But many believe that Federal Reserve direct accounts for individuals would be an inappropriate extension of the Federal Reserve’s role, and that in any case the Federal Reserve would not be well equipped to reach the kinds of retail customers who are not have no traditional bank accounts. Furthermore, the creation of a CBDC in the United States faces many challenges, both technical and political. There is substantial debate not only about how such an instrument should be designed, but also about its necessity. It will almost certainly take a number of years before a consensus emerges on the right path forward.
However, the need for financial inclusion remains important and urgent. According to the FDIC, 5.4% of U.S. households are unbanked and about three times as many are underbanked — the latter term referring to those who have a bank account but use expensive nonbank services like check cashing, money orders, payday lenders and international money transfer services. The unbanked as a percentage of the population are more numerous in the United States than in any other G7 country and much more concentrated among those at the bottom of the income scale. Despite considerable efforts by consumer advocates for decades, neither regulatory authorities nor private initiatives have succeeded in providing universal access to financial services.
The Treasury Department, in our view, is a much more logical place for the federal government to experiment with improving access to financial services. He has decades of experience as well as the legal authority to create a Treasury Accounts program that could reach the underserved. During the pandemic, it was the Treasury Department with the Internal Revenue Service, which is an office within the department, that was tasked with distributing the emergency payments and then advanced child tax credits to millions of households, many without traditional bank accounts. Although the process was bumpy at times, the Department’s overall performance in distributing nearly $1 trillion in pandemic-related benefits in addition to half a billion separate payments was impressive. The Treasury has also designed several programs over the years aimed at reaching the underserved. This includes federal benefit distribution programs that, in some cases, incorporated payment services. The Treasury created the Direct Express program that allows unbanked people to receive federal benefits on a privately operated prepaid card. He also developed the Treasury Direct digital interface that allows individuals to invest directly in government securities and experimented with creating a new class of digital savings bonds to encourage retirement savings.
Our proposal for treasury accounts would provide low-cost, no-frills payment services and encourage the accumulation of emergency savings reserves. The extent of the eligibility criteria would need to be determined, but they would be designed to meet the needs of low-income people and in particular the unbanked and underbanked, drawing on the experience the Department has gained in working with fintech companies and non-profit groups. during the pandemic. For example, treasury accounts could provide:
- basic services and fees incorporating recent Fintech approaches based on simplified mobile banking interfaces and checkless payments, as well as overdraft or insufficient funds fees, very low or no balance requirements and monthly maintenance fees .
- faster clearing of deposited checks compared to private market offerings, a critical need for people who live paycheck to paycheck. The Treasury could provide for the immediate clearing of government checks and facilitate direct deposit for participating employers.
- more effective know-your-customer filtering, which often prevents or discourages unbanked people from obtaining private accounts. The account opening check could be considered largely or completely satisfied by someone having already established eligibility and receiving government benefits; and
- a maximum balance to minimize the risk of disintermediation, with provisions for the transfer of accounts that reach these limits to private accounts.
The program could be implemented using the Fiscal Agent authority of the Treasury to partner with commercial institutions, the cost of which is covered by a permanent, indefinite appropriation enacted in 2004. Customer Contact. These agents could include fintech companies that could provide innovative forms of outreach, including through mobile apps, as well as minority-owned and other businesses that have experience reaching underserved populations. served. We describe two possible legal structures for creating Treasury accounts that would not require new legislation, one building on the existing Direct Express program and the other using the Treasury Savings Bond Authority. We conclude by discussing how treasury accounts compare to a CBDC as a means of promoting financial access, and how they could generate useful information and insights that could then be incorporated into any CBDC the nation eventually decide to adopt.
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Howell Jackson is a board member of Commonwealth, a non-profit organization that promotes financial inclusion and access. The authors have received no financial support from any company or person for this article or from any company or person with a financial or political interest in this article. Other than the above, the authors are not currently an officer, director, or board member of any organization with a financial or political interest in this article.
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