During the Covid-19 response, the amount of fiscal and monetary response has been extraordinary. As unemployment approaches highs not seen since the Great Depression, governments have rushed to bridge the gap. As per NBC News, the IRS has sent out over 159 million stimulus checks, representing about $267 billion directly dispensed to Americans.
The payments represent a $1,200 payout for each adult, $2,400 for married couples, and $500 for each child 17 years and under who are under the care of adults. 120 million of these payments were sent by direct deposit, 35 million by check and 4 million by prepaid debit card.
In a recent Congressional hearing, the question of whether or not to use a digital dollar to deliver further stimulus payments came up. The full notice with PDFs of witness testimonies is on the official Congressional site. A memo that came with the hearing notes that 35 million payments were made through paper checks, while 30 – 35 million more were to be made — and this was just with the first round of stimulus. $55 billion was sent through paper checks through June 5th, 2020.
The default assumption is that those with paper checks are underbanked or unbanked. According to the Consumer Federation of America, it cost, on average in the United States, 4.11% of the amount to cash a payroll check through cash checking services. However, this varies highly by state, with some states such as California having charges as high as 12%. Applying this average across all checks sent in the first round however yields savings of slightly more than $2.26 billion if you could abstract away all of the cost.
While it’s possible people used other methods than cash checking firms to deposit their money and that digital wallets/accounts will have processing fees of their own (though much smaller), this number would only compound further with more stimulus checks sent to people whether in catching up to this first round or in future rounds. It’s safe to say that the American taxpayer could benefit in the order of billions of dollars.
The memo also noted that 64 million taxpayers filed without any banking information in 2018 (about 41% of filers), making it difficult to make direct deposits and representing a population of people who might be underbanked or unbanked, and would be difficult to get stimulus payments to with direct deposit or without significant processing fees (if their information can be obtained at all).
The bills proposed by Senator Brown (Ohio – D) and US House Committee on Financial Services Chairwoman Maxine Waters not only ask for digital wallets for delivery, but want to tie these digital accounts with physical postal service infrastructure and additional stimulus payments until unemployment is within 2% of the pre-Covid-19 pandemic — so roughly 6% unemployment (the current unemployment rate stands at 13.3% as of June 19th, 2020). This could mean multiple rounds of stimulus beyond the current round, especially if there is a new President and Congress after elections.
If that comes into fruition, that means multiple rounds of inefficient paper checks sent at the current rate — meaning that recipients could stand to lose tens of billions of dollars in aggregate they would not have otherwise.
One of the interesting reasons fiscal policy and monetary policy sometimes clash in terms of timing comes down to implementation issues. Essentially, monetary levers work very quickly: established players in the private banking system are already on trusted ledgers with the Federal Reserve. There are already quite transparent and liquid markets where the Fed can decide to go and buy assets.
This makes monetary policy fast-acting, and quite often it will be the first step that takes effect. With less democratic constraints and a smaller voting board, monetary policy is designed to be an emergency stopgap. It does, however, come at a cost. Monetary policy often cannot solve a problem, especially one that’s largely non-financial in scope, by itself.
It often also can cause inequalities — as the assets it bumps up in price are often disproportionately owned by the wealthiest and most politically connected classes. If not coordinated with fiscal policy, monetary policy can quickly create a chasm of economic resentment. It can also become a crutch, with several states that have adapted monetary experiments such as negative interest rates finding out that market expectations adjust with them — and so it becomes ever more difficult to diverge from a monetary path.
Fiscal policy is meant to correct that, but it’s meant to be more deliberative and consequently more representational. Only fiscal authorities can do actions that directly affect people without necessarily resorting to bond markets or interest rate curves. Democratic constraints based on population-level representation (the House) and region-level representation (the Senate) should mean that any Congressional decision comes after reflection, and is not hastened automatically. This doesn’t work all the time — but it is meant to be a more equitable and deliberative process than technocratic monetary authorities.
However, once a fiscal choice has been made, constraints to its effectiveness should not play such a major role in their decision. The American taxpayer is owed billions of dollars that go to payment processors instead — an inefficiency that punishes the underbanked and unbanked. Switching to digital currency and lower processing fees should be a top priority to help reclaim something from the billions already lost.
Yet it’s clear that it comes as a backdrop of increasing digitization efforts. States carry digital ledgers for most of their money, which is stored online between private banks and central banks, but they all use paper banknotes and coins. Reducing inefficiencies and increasing the amount of data you can collect would be key policy goals for any government.
What role do cryptocurrencies play in this debate? The Congressional proposal of extending the banking system with digital wallets/accounts is more of the same state-backed digital currency proposed around the world for those two key benefits of more granular data/control than cash, and less payment inefficiencies.
The American government can’t use cryptocurrencies as that would be endorsing their status as a store of value and using the power of the American state behind a peerless network that has no geographic jurisdiction beyond the physical location of its peers. If cryptocurrency is going to win the day, it will likely come through overwhelming mass public adoption of already existing digital payments infrastructure that speeds past what the government can build — a bottoms-up technological approach rather than a top-down political one.
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Roger Huang
I was one of the first writers in 2014 to write about the intersection of blockchain in remittance payments and drug policy with VentureBeat and TechCrunch. Since then,
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Sep 3, 2020,07:10pm EDT
If Bitcoin Crashes Below $10,000 It’s All Over—Here’s Why
Billy BambroughContributor
Crypto & Blockchain
I write about how bitcoin, crypto and blockchain can change the world.
Bitcoin has declined sharply this week, losing over 5% in under 24 hours and causing traders to nervously eye the psychological $10,000 per bitcoin level.
The bitcoin price lost $1,000 in a matter of hours, falling under $11,000 per bitcoin on Thursday morning with the U.S. stock market posting its biggest sell-off since June by the close of play as stocks retreated from all-time highs, led lower by tech giants.
Bitcoin and cryptocurrency market watchers, who have enjoyed a prolonged bull market since the March coronavirus crash, are now focused on the $10,000 line, with a bitcoin futures trading gap set in late July still open just below it.
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The bitcoin price lost almost $1,000 per bitcoin[+]
LIGHTROCKET VIA GETTY IMAGES
Bitcoin’s 2020 bull market, which has seen the bitcoin price surge from around $4,000 to $12,000, could be brought to an abrupt end if the price moves lower than $10,000 per bitcoin.
“Moving forward, it is important to keep an eye on the last zone of defense between $10,000 and $10,500,” Joe DiPasquale, the chief executive of San Francisco-based bitcoin and crypto hedge fund BitBull Capital, said via email. “As long as this range is respected, bitcoin is unlikely to see a prolonged bearish spell.”
The bitcoin price fell as low as $10,455 per bitcoin on the Luxembourg-based Bitstamp exchange on Thursday before somewhat rebounding.
The open trading gap, set on July 27, saw bitcoin futures on the Chicago Mercantile Exchange (CME) open higher after the weekend close, something some analysts think causes a disconnect with the underlying market and appears to have set bitcoin on its path to recent highs of around $12,000. Technical analysis shows that 90% of such trading gaps are eventually closed, with the price sooner-or-later retracing back to the gap.
Elsewhere, bitcoin and cryptocurrency exchange data suggests there could still be “sell pressure to work through,” according to Philip Gradwell, chief economist at blockchain intelligence firm Chainalysis.
“Bitcoin inflows to exchanges were 92,000 yesterday, highest in 37 days, as people rushed to sell at near $12,000 prices of September 1,” Gradwell said via Twitter. “Trade intensity, how many times the inflowing bitcoin was traded, is low, suggesting there were not many buyers to match the sellers.”
Meanwhile, bitcoin miners, those who secure the cryptocurrency’s network in return for bitcoin rewards, “are moving unusually large amounts of bitcoin,” according to analysts at data provider CryptoQuant, suggesting miners are looking to cash out their bitcoin rewards.
“The big level that everyone is watching is $10,000,” Mati Greenspan, the founder of Quantum Economics, wrote in his popular daily newsletter, pointing to a U.S. dollar comeback as the reason for the recent move lower.
“The crypto market has broken a few psychological levels. When we broke above that level in late July, it was with such force that we never really got to test it as support. Well, this may just be our chance,” Greenspan wrote, adding, “if things get really bad we may just get another chance to buy bitcoin below $10,000.”
MORE FROM FORBESA Radical New Crypto Just Blew Past The Bitcoin Price All-Time High-Up A Shocking 3,500% In Just One MonthBy Billy Bambrough
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The bitcoin price has lost almost 6% over the last[+]
COINBASE
However, many in the bitcoin and cryptocurrency community remain upbeat despite the recent bitcoin price fall.
“$10,000 is the new $1,000,” Charles Hayter, chief executive of bitcoin and cryptocurrency analytics platform CryptoCompare, said via email, adding: “2020 has seen leaps and bounds in terms of infrastructure, regulation and resilience across the ecosystem as it has evolved over the last three years.”
The current bitcoin market is “similar to the first half of 2017,” according to Hayter, who thinks “the perpetual dilution of fiat currencies is being challenged by bitcoins hard code cap” of 21 million bitcoin tokens.
Bitcoin, along with the wider cryptocurrency market and global stock markets, has been boosted this year by massive stimulus measures and unprecedented money printing that’s carried out by the world’s central banks, led by the U.S. Federal Reserve, in order to offset the economic damage wrought by the coronavirus pandemic.
“For most of 2020, short-term bitcoin price moves have been highly correlated to U.S. stocks,” Cory Klippsten, the chief executive of bitcoin buying app Swan Bitcoin, said via Telegram, adding he expects “any dips under $10,000 to be bought up voraciously.”
“Bitcoin has proven to be uncorrelated over the longer term. At a minimum it is a hedge against fiat inflation, but it also functions as a call option on a new global monetary system.”
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Billy Bambrough
I am a journalist with significant experience covering technology, finance, economics, and business around the world. As the founding editor of Verdict.co.uk I reported
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