Stimulus check: Payments could be delivered through digital tools and FedAccounts

The IRS has sent over 160 million stimulus checks, representing about $267 billion of the CARES Act signed in March to help Americans during the coronavirus pandemic. 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. On 11 June there was an open hearing on Task Force Financial Technology and one of the focus was strengthening the existing payment rails and the two tier banking system, with private-public partnership.

The Internal Revenue Service has stated that 35 million payments were made through paper checks between April - May, while 30 - 35 million more were yet to be made. An additional $55 billion were sent through paper checks through 5 June 2020.

In recent Congressional hearings, the question of whether or not to use a digital dollar to deliver further stimulus payments since it would be cheaper and faster. It costs on average in the United States 4.11% of the amount to cash a payroll check through cash checking services. For example California has charges as high as 12%. So if the Treasury approves a second stimulus check they could more than $2.26 billion if they switched to digital payments.

FedAccounts

The Federal Reserve Banks provide financial services to banks and governmental entities only. Individuals cannot, by law, have accounts at the Federal Reserve. Many are in favor of using post offices as the brick and mortar access points of FedAccounts as they are highly trustworthy and may even be the only local institution of the federal government in rural areas.

FedAccounts would be used to distribute stimulus and other benefit checks but today post offices can’t take deposits. One of the biggest arguments against FedAccounts is the fact that they may cause bank runs in crisis times as customers fly to safety.

Central Bank Digital Currency

The Honorable Christopher Giancarlo, former chair of the CFTC promotes the digital dollar as a director of the Digital Dollar Project. He says that the digital dollar is a solution to direct distribution of stimulus money. When asked about the possibilities of frauds and scams on the system as well as the preservation of privacy, Giancarlo framed a pathway to the digital dollar that is incremental and cautious with multiple proofs of concepts and limited experimentation.

This method is too ‘young’ so it may not address the needs of a stimulus package today amid the Covid-19 pandemic. Also no technical details or even sketches about the technical direction for a digital dollar are available at the moment.