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Public Benefits: Coming Soon to a Digital Wallet Near You

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.

By Barbara L. Neuby
July 24, 2023

In my April column devoted to the Central Bank Digital Currency, I discussed the second stage of the Federal Reserve’s process and opened the door to the administrative heart of the issue—that of benefits administration. In this column, I will review key issues surrounding electronic benefits administration and make a projection about how the CBDC may be implemented for existing benefits.

On March 9, 2022, President Biden signed Executive Order 14067 to direct the Office of Science and Technology Policy (OSTP) to develop a National Digital Assets R & D Agenda. This agenda covers policy goals and technical considerations of rolling out a digital currency not only to customers who have bank accounts but also to bring the six percent who are unbanked into the banking system. Some of the primary policy objectives of any digital currency system are faster, more secure payments, a decrease in the illicit use of cash, modernization and efficiency.

Currently, federal benefit programs such as Temporary Assistance for Needy Families (TANF) or Supplemental Nutrition Assistance Program (SNAP) are passed through the states to recipients via electronic means such as a magnetic encoded card, funds sent to a retailer for a recipient or directed to a recipient’s bank account. Moving toward a more efficient system is a policy goal of the central bank digital currency (CBDC). During the COVID-19 emergency, language was added to several stimulus bills for sending funds directly to the public through a “digital wallet” held at a Federal Reserve member bank. This pilot was to be an experiment of mass benefit delivery but the language was deleted before any of the COVID stimulus bills were passed. Why this language was removed at the last minute shall become evident in a moment. The President’s Executive Order in early 2022 brought new energy into the digital currency movement. Let us look at how agencies may roll this new benefit out.

About two million adults and children receive TANF, and forty one million persons receive SNAP benefits, the latter administered through the U.S. Department of Agriculture. If these benefits are to be distributed through a digital wallet, the states may be bypassed as benefits go directly to the “digital wallet.” Such a wallet is a new account at a Federal Reserve bank or another bank. Before benefit transfers can happen, hardware and software must be created, security measures tested and in place, trial runs must occur and transaction histories must be recorded, studied and maintained. Part of the security features include a special “key” by which to access one’s wallet. The wallet will have an address which is a set of 25 to 35 alphanumeric characters similar to a password. The payer will have a key to a recipient’s wallet and the recipient will have their own key. Once inside their wallet, the recipient can then transfer assets to another wallet, again with a special key. The Office of Science and Technology Policy is considering how many signatures or authentications must be added to this process to make it more secure. Add to TANF and SNAP, the number of Medicare and Medicaid enrollees at 62 and 86 million recipients respectively and then add 66 million Social Security beneficiaries. All totaled the number of wallets needed to distribute digital currency is 257 million, not counting those needed for other benefit programs.

Assuming these things can be done within the next few years, agencies will have a lot of work to do acquiring the hardware and software, getting the right training or hiring new employees. Banks, insurance companies and healthcare providers will have to work closely with the Federal Reserve and member banks. The OSTP is considering many of these questions and other considerations now. To the point of why the digital wallet language was eliminated from the stimulus bills, the answer should be fairly obvious. The wallets did not exist nor was there time or energy available to create them. Even though the proof of concept is now made in Projects Hamilton and Cedar, much work must be done to bring the central bank digital currency to fruition and digital wallets must be present before that can take place. The range of administrative questions should boggle the mind.  

In the next and final column, some of these questions will be answered along with a glance at the pros and cons of these changes. In the meantime, the White House Office has published several documents that lay out the framework for this vast financial and administrative effort equal to the moon landing.

Author: Dr. Barbara L. Neuby is a Professor of Public Administration at Kennesaw State University where she teaches budgeting and other administrative courses. Interests include the changing roles of governments around the world and numismatics. She can be reached at [email protected].

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