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Digital Dollar Project unveils its digital currency model – Ledger Insights


Today the Digital Dollar Project published its first whitepaper outlining a pragmatic set of design features to be investigated. The initiative is a partnership between Accenture and the Digital Dollar Foundation to explore a US central bank digital currency (CBDC) through public discussions. The Digital Dollar Foundation was co-founded by former CFTC commissioner Chris Giancarlo and is supported by a 30-strong advisory group.

The report opens with the motivation: “Given the US dollar’s status as the world’s primary reserve currency and exploration of CBDC by other national governments and stakeholder organizations, the Digital Dollar Project sees piloting a US digital dollar across a range of use cases as a critical and prudent initiative for the United States to begin now.” 

Earlier today, we highlighted how former US Treasury Secretary Henry Paulson doesn’t see the digitization of the renminbi suddenly challenging the dollar, although he does believe the dollar’s dominance is likely to decline.

The Digital Dollar whitepaper describes the features of the group’s “champion model”. At this stage, the Project wants to explore the digital dollar for both retail and institutional / wholesale transactions. Privacy design may be a key factor for both a retail CBDC and any private stablecoin competitors. We explore that last.

The champion model

In terms of the model, first off, it wants to adopt a two-tier structure that involves distributing the digital cash via commercial banks, much as happens with physical cash today, although it doesn’t want to replace cash. A digital dollar would be a third form of money. The Federal Reserve would still have the same control over monetary policy, and optionally the currency may be interest bearing, with either positive or negative rates.

Tokenization has been selected over an account-based model. That’s in part because it closely mimics physical cash and more easily enables peer to peer transactions. It’s also rather convenient for use in digital settlements and especially for distributed ledger transactions. 

Regarding technology, the group says the requirements will dictate the choices. However, it has a preference for distributed ledger technology (DLT), and at the very least, it will be DLT inspired and include programmable money. More specifically, it wants to explore DLT with “public, private, and perhaps novel public-private organizations validating transactions.”

On the latter point, Accenture’s David Treat clarified via email: “We anticipate, support, and are open to all forms of public private collaboration to drive this wave of innovation. While Central Bank backing is implicit in CBDC, the use cases, services, and infrastructure will create opportunities for many to participate.”

The role of privacy in a CBDC

The extent to which governments have access to your data is a major issue. Larry Summers thinks that money is too private at the moment. Others – who are not criminals – find current anti money laundering processes overly invasive. 

The whitepaper outlines some level of privacy as likely. The details of low value balances or transactions could remain private, in a similar way to cash. It says the Fourth Amendment provides some protections which require the government not to search or seize information unreasonably. If the Fourth Amendment protections stand in the case of digital currency – which may only be established through case law after the fact – then some privacy protections would exist. All digital dollar users would have to go through know your client (KYC) procedures. 

Accenture’s David Treat elaborated on this point: “Our intent is to raise key topics like the interplay between privacy and applicable legal and regulatory requirements. We believe that the technology has advanced to a state where it is possible to both enable privacy and meet the necessary control frameworks.”  

“Armed with a knowledge about what the various technologies can do, we anticipate deep policy discussions around how best to apply them to meet our collective needs. In some cases, the answer may be that laws and regulations need to be evolved to fit a new context, in other cases, we will innovate and apply technological capabilities to fit. The key is that we have sufficient public discourse to collectively decide what we value.”

Central bank think tank OMFIF together with Ipsos Mori researched attitudes to digital currencies and found that CBDC was favored over various kinds of private currencies. US citizens weren’t that keen as a whole. But in relation to privacy, our observation is that it’s conceivable that stablecoins could survive alongside CBDC, simply because they are not issued by the government. Users might be willing to trade off government-backed security for enhanced privacy and potentially other features not offered by a CBDC.

Accenture’s Treat commented: “Only through enabling people to have real-world experiences and clear open dialogue will trust be established with any new technology. This frames our focus in publishing this white paper and supporting a phase of pilot uses cases in the coming months where we hope to engage a variety of stakeholder groups to gain that experience.”




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