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Money in Context: Part 2


Robert Hockett (@rch371) is the Edward Cornell Professor of Law at Cornell Law School.

This is the second post on ‘Money in Context.’ You can read the first post here

The observation with which I closed Part 1 implicates a challenge – or perhaps better put, it extends an invitation. In light of the inherently infrastructural role played by payment systems and their associated monies in any ‘exchange economy’ or ‘commercial society’ such as our own, there is one urgent conclusion to draw.

I mean that we as a polity both can and must very soon establish a single digital payment platform and associated digital fiat currency freely available to literally every citizen and legal resident of our nation. It means that we must soon develop what I call a Democratic Digital Dollar and Fed- or Treasury-administered National Ledger available to all. This is where the arc I identified earlier – ‘from ledger to coinage and back’ – should, and I believe will, take us.

As it happens, I’ve been designing and advocating two practical systems along these lines, one at the state level and one at the national level, and have drafted legislation to institute and implement them. One of those pieces of legislation was proposed in the New York State Assembly and Senate last autumn. The other piece of legislation is now under consideration in relevant Committees of the U.S. House and Senate.

The plans stem directly from recognition of the observations elaborated in Part 1, that to make a payment system is likewise to make a money, and vice versa. If a public authority establishes a digital payments platform with an associated network of device-accessible peer-to-peer-networked digital wallets, it simultaneously establishes a money, a money system, a universal value ledger, and a digital rendition of free public banking for all. And while the optimal form of this system would be administered by the Fed or Treasury for the nation as a whole, the plan can also be effected at state or local ‘levels’ of government, indeed even among ‘compacts’ of states, until we go fully federal.

I call the state plan now under consideration the Empire State Inclusive Value Ledger (IVL), and have worked in close collaboration with two brilliant, visionary, and morally committed state legislators – Senator Julia Salazar and, especially, Assemblyman Ron Kim – in developing it. Assemblyman Kim and I conceived the IVL first as a means of enabling New York to reward many forms of ‘care work’ that currently go unrewarded at least in part because (a) their performance can be difficult to verify in Albany, and (b) they can be equally hard to remunerate for simple logistical reasons. As we developed a digital architecture to handle these challenges, we knew we were also, in effect – thanks to money’s relation to payments – developing a form of ‘complementary currency’ and ‘public banking’ as well.

The basic structure is this: New York issues to every citizen, resident, and business operating within its jurisdiction a digital wallet accessible by smart phone or smart device. Each wallet has what I call ‘vertical’ peer-to-peer (P2P) connectivity to the state fisc, meaning that all $57 billion that New York conveys to its residents and businesses each year in the form of procurements, tax refunds, and program benefits will take the form of crediting their wallets (and debiting the State’s). The nearly equal volume of payments into the fisc in the form of licensing fees, taxes, fines and other payments will occur in the same manner.

Meanwhile, each wallet also has what I call ‘horizontal’ P2P connectivity with all other wallets, including those of businesses and banks. Hence, anyone is able to purchase or sell anything legally purchased or sold in ‘real time,’ again through simultaneous crediting and debiting of digital wallets. Since businesses are included, they will no longer need pay fees to bankcard or credit card companies in order to process payments. And since banks are included, anyone will also be able to convert digital dollars to cash in the usual manner at teller windows and automatic teller machines (ATMs) – we shall even make it a condition of bank licensure that they afford this capacity fee-free.

Consider the many vexing social and economic dysfunctions that such a system will defuse. We instantly end the problem of the ‘unbanked’ and ‘under-banked,’ since a P2P-networked ‘wallet’ is simply the digital rendition of a bank savings and transaction account. We likewise end the problem of exploitative rent-extraction by check-cashing ‘services’ and ‘payday lenders,’ since payments from public and private sector sources alike can go directly to wallets in spendable form. We also enable faster transacting and hence ‘economic growth’ insofar as GDP calculations make transaction volume the measure of ‘size.’

In addition, we enable states and localities to remunerate many forms of publicly beneficial ‘care work’ and ‘city beautification.’ A sixth-grader who tutors a first-grader after school can be compensated. A stay-at-home father or mother who cares for an infant or older relative or shut-in can be compensated. A volunteer who cleans neighborhood sidewalks or streets can be compensated. All that is needed is that a randomly auditable beneficiary verify, through the system, that such work has actually been done.

Once we go fully national with the plan, moreover, we shall open the door to ‘direct’ monetary policy operating through the digital wallets instead of middleman banking institutions – a win for just and efficient money modulation alike. To enable flexible monetary policy, just add interest payments on wallet balances. Transacting can then be slowed, and inflation averted, by raising rates. It can be boosted by lowering rates or – as is needed right now in the midst of pandemic – doing ‘helicopter drops.’ This of course takes us to the national rendition of the universal ledger, or what I call Democratic Digital Ledger.

Though few seem to know it, the U.S. Treasury already offers direct transaction accounts to nearly all in our country who want them. Visit Treasury Direct and you’ll quickly learn that, with no more than a bank account and a Social Security or Taxpayer ID number, you can open an account in no more than five minutes. Then you can begin purchasing all manner of Treasury securities, and can redeem them as well, any time of any day, 24/7.

The reason that this is of interest, of course, is that it means we have half the skeleton of a national payment ledger and associated digital currency already in place. All we need to add are three things: First, horizontal connectivity among Treasury Direct Accounts (TDAs) to supplement the current vertical connectivity between those accounts and the Treasury. Second, conversion of all TDAs to Treasury Direct Wallets (TDWs), made available to all citizens, legal residents and businesses including banks. And third, issuance by Treasury of one new class of Treasury Bill – I call it a Treasury Dollar Bill, or Treasury Dollar – with all of the attributes of a Federal Reserve Note (i.e., ‘dollar bill’) including legal tender status – meaning that Treasury Dollars needn’t convert into Fed Dollars, meaning in turn there is no need of private sector bank accounts alongside our new TDWs.

The result is no-fee, portable, digital banking and payments for literally everyone – every citizen, every resident, and every business. Moreover, when Congress wants to get money into people’s hands immediately—as just legislated in the CARES Act—these digital wallets stand ready to receive it.

This is not nearly as fanciful as some might think. It is precisely what we did in the era of paper currency in the late 19th and early 20th centuries. The ‘Greenback’ adopted during the Civil War – our first federally issued legal tender paper currency – replaced a plethora of unstable private sector ‘bank notes’ that were every bit as bewildering and dysfunctional as today’s privately-issued digital ‘coins.’

In effect, then, what I’m proposing is simply to do digitally what we did earlier with paper, in order to make money as universal now, in a new technological environment, as we did with the National Banking, Currency, and Legal Tender Acts back then. We should do this not only because now we can, but because we always must. For in any ‘exchange economy’ like our own, a payments system is an essential public utility. It is to buying and selling what sidewalks and streets are to moving.

Let’s make the transition, then – or rather, the return – to fully public money. Doing so will not only be more efficient, but more just. Our guiding principle will be the axiom stated in Part 1: Money and payment are one.

Further Reading:

Robert Hockett, The Treasury Dollar Act of 2020 (draft bill, 2020).

Robert Hockett, The Empire State Inclusive Value Ledger Implementation and Administration Act of 2019 (introduced in New York State Assembly, October 10, 2019; introduced in New York State Senate, October 10, 2019).

Robert Hockett, The Democratic Digital Dollar, 10 Harvard Business Law Review 1 (2020).

Robert Hockett, Money’s Past is Fintech’s Future, 2 Stanford Journal of Blockchain Law and Policy (2019).