There is no doubt that with cryptocurrency, fintech, and all the other technology related to money and payment services life got more accessible and practical. However, not all countries accept cryptocurrency payments and not all financial technologies provide services worldwide. Hence, with digital transformation, governments have taken steps toward digital currencies, one of them being the "ECASH Act" from the United States.
On 28 March 2022, the ECASH Act bill was introduced to Congress, an acronym for "Electronic Currency and Secure Hardware Act". The Bill directs the Secretary of the Treasury to develop and pilot digital dollar technologies that reflect the features of physical cash, build a secure hardware system that respects the data privacy of the consumer and create a system for regulating such digital assets.
Digital Currencies
In 2012 the European Central Bank defined virtual currency as " a type of unregulated, digital money, which is issued and usually controlled by its developers, and used and accepted among the members of a specific virtual community". With this definition, digital currencies can be defined as "a form of virtual currency that is electronically created and stored", however, not every digital currency is a type of cryptocurrency since the characteristics are drastically different.
According to the classification by Fintech Notes by IMF, instruments are classified under four attributes which are type, value, backstopping, and technology, respectively. Cash, as regards the report, is an object-based means of payment, denominated in a unit of account, backed by the government, and centralized. Being object-based means the transaction is settled immediately where the object is exchanged and that particular object is valid for the parties. Additionally, being denominated in a unit of account means the fixed value which guarantees redemption at a pre-established face value. Thirdly, it is backed by the government which means the government issues it. And finally, transactions leveraging centralized technologies go through a central proprietary server, in other words, it is centralized.
As can be seen, explained above, other instruments have different attributes. It is crucial to differentiate these instruments to understand the legal status of new regulations.
From another point of view, cash must have some core characteristics to be considered cash. Money has the same inherent attributes in the world which are as follows:
Cash being payable-to-bearer is the most basic one of the principles since it is a form of a negotiable instrument.
Cash is denominated in coins and currencies issued by the governments, hence it is legal tender. Consequently, without authorization, one cannot print money, otherwise, it is counted as counterfeit.
Cash must be durable since it bears a fixed value and it is a legal tender.
Cash must be transportable, if not, it wouldn't be an efficient type of payment instrument.
Cash also is a medium of exchange which means it is used to purchase goods and services, hence, it also must be divisible to make payments.
Another group is gathered under the claim-based means of payment and some of the examples are debit cards, wire transfers, cheques (which can be defined as b-money or commercial bank deposits); AliPay, WeChat Pay, TrueUSD, USD-Coin (e-money or electronic money); and i-money or investment money like Digital Swiss Gold. All the mentioned instruments are a form of payment based on a claim that guarantees there is an underlying asset.
e-cash and Its Legal Status
The comparison table of the different types of currencies is as follows, which is retrieved from the ECASH Act Page that explains what is the e-cash:
According to the comparison between instruments made in 5 categories:
What is the unit of account? Is it the instrument's unit or is it denominated in U.S. dollars?
Is it issued by the private sector or by the government?
Is it an instrument that is retail-oriented/ directed to the public?
Is it reliant on a common ledger or any third party or is it hardware-based?
Is it anonymous, offline, and peer-to-peer?
According to the comparison, since it is made to reflect the qualities of physical cash, the e-cash project is denominated in U.S. dollars, government-issued, hardware-based, and satisfies being anonymous, offline, and peer-to-peer.
When it is compared to other forms of instruments, it is more likely to be classified under an object-based mean of payment, denominated in a unit of account, centralized, and issued by the government which is how it is intended to be.
On the explanation page of the ECASH Act, e-cash not being used in blockchain or any other distributed ledger technology is emphasized. Additionally, U.S. e-cash is a digital currency, it is noted that e-cash in no way shape or form is a CBDC or it is competing with US CBDC. Hence, it will be different from other kinds of digital currencies in regard to mechanism and operation principles.
Previous Attempts on Digital Currencies
Finland - Avant (1993): Avant system is adopted in 1993 and silently fizzled out in 2006. Because of its card fees and lack of efficiency, slowly but surely users' counts decreased.
United Kingdom - Mondex (1995): National Westminster Bank (NatWest) piloted a payment platform that is stored-value in the U.K. named Mondex. It was used for 3 years between 1995-1997. In 1997, Mondex's controlling rights were sold to Mastercard, and research and development continued. Before the 2000s, Mondex went out of business.
Current Studies
CBDCs: One of the first attempts at digital currency is the Central Bank Digital Currency ("CBDC"). It is denominated in the local unit of account, is issued by the central bank, is settled in a decentralized manner among transacting parties, and has a physical appearance. However, CBDCs cannot satisfy the anonymity quality of the cash since it is reliant on a ledger.
There are numerous projects on CBDCs. The Bahamas is the first country in the world with a launched central bank digital currency in 2017. e-Naira is the second launched CBDC, in 2021.
Aside from launched CBDCs, there are 97 ongoing CBDC projects.
Digital Yuan / e-CNY: Digital yuan is one of the most popular CBDC projects. It was worked on since 2014 and it came a long way. For the 2022 Beijing Olympics, China enabled foreigners to create an account with their passport numbers to encourage people to use e-CNY. Also, for practicality, the People’s Bank of China developed iPhone and Android apps.
Digital Euro: The European Commission is creating the digital euro, which will be issued by European Central Bank. The intended year for the launch is 2023. However, there are no substantive details released to the public.
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