Ron Kim was already convinced that money should be redesigned. Now that the coronavirus epidemic has hit, he’s doubling down.
Before covid-19 started spreading in the United States, Kim, a New York assemblyman who represents a district in Queens, had been pushing for the state to create a publicly run digital payment system. He and other proponents described the concept as a sort of “public Venmo,” after the popular peer-to-peer payment service.
Kim’s argument is essentially that New York residents need a free, publicly accessible payment network. Why? Credit card companies and other for-profit digital payment platforms often charge exorbitant transaction fees and tend to exclude people who don’t have bank accounts. And they raise serious privacy questions by collecting transaction data.
Now the pandemic has highlighted yet another reason why we need publicly accessible digital payment platforms, says Kim. The government needs a better way to send benefits to the people who need them. “It’s even more urgent now to implement a seamless way of delivering benefits into digital wallets,” he says.
Kim came up with the original idea of a “public Venmo” for New York along with Cornell law professor Robert Hockett. In an academic paper describing the concept, Hockett, who also has a background in computer science, argues that new financial technologies that have emerged during the past decade make the construction of a peer-to-peer payment platform “a simple and straightforward proposition.”
Last Fall, Kim, Hockett, and Julia Salazar, a state senator who represents much of Brooklyn, unveiled a legislative proposal for what they have officially called the Inclusive Value Ledger. The platform would let people save, spend, and lend a new digital currency that would work only in New York.
They trio also proposed that certain public benefits, like state tax credits aimed at low-income households, be turned into digital currency that could be doled out to recipients via a “digital wallet.” This would also make it possible to do things like credit the value of public school lunches to parents whose kids aren’t benefiting from those meals because schools are closed during the covid-19 pandemic, says Kim. In theory, even federal benefits could be distributed to New York residents through the same public system—perhaps using a future digital version of the US dollar, he says.
Meanwhile, thanks to the epidemic, we know that such a digital dollar may not be that far off. That became clear during the leadup to the passage of the US government’s $2 trillion emergency stimulus legislation, which President Donald Trump signed on March 27. Since so many Americans had already lost their jobs, the final bill authorized the Internal Revenue Service to send direct cash payments to millions of Americans to help cover normal living expenses. As Congress debated the best way to distribute that cash, powerful Democrats in the House of Representatives pushed for the creation of what they called a “digital dollar.”
The idea, essentially, was that America’s central bank, the Federal Reserve, would open the door for retail customers—normal people like you and me, not just banks—to open accounts there, in the form of digital wallets. People would have been able to open these special accounts via either their commercial bank or the US Postal Service, which would provide account services and ATMs.
Not only would it be much faster than mailing checks, which will take weeks or months, but transferring digital dollars by means of a publicly run system would theoretically be more inclusive than using the banking system as an intermediary. Commercial banks in the US are not required to offer an account to everyone who asks for one, and as a result, “the banking system finds a way to exclude people who aren’t profitable,” says Morgan Ricks, a professor at Vanderbilt Law School who says he advised unnamed congressional staffers on the idea of a digital dollar in March.
Using commercial banks to transmit stimulus benefit checks has already had deleterious effects for some people. Since Congress did not exempt the stimulus payments from private debt collection, banks are apparently holding the payments to offset some people’s outstanding debts.
The digital-dollar language didn’t make it into the final bill, with Congress electing a more traditional distribution approach consisting of direct bank deposits (using the banking info the IRS has on file) or mailed paper checks. The final law does make it possible to bypass traditional banks by having the money deposited directly into a PayPal account or added to Square’s Cash App. But Kim calls that a “Trojan horse” for commercial digital payment systems. “Even if they offer free transactions, they will still extract data and find a way to monetize,” he says.
Still, there remain unanswered questions about how a government-run system like what Kim is proposing should be designed. The biggest issues involve data privacy and security. How will users of the network prove their identity? And how will their personally identifiable information be protected from hackers and spies?
Kim acknowledges that right now the idea is the important thing. “At the core of what we’re trying to do in the first phase is simply make the argument that payment platforms do not have to be private,” he says. “It can be like a public highway or road. You don’t need to pay rent to walk down the street.”
Now that we’re facing a pandemic, that could become a much easier case to make.