A legislative bill has been filed in the state of New York proposing a dollar-based digital currency for its residents. The ‘Inclusive Value Ledger’ initiative is spearheaded by a pair of lawmakers and a Cornell professor. The goal is to develop a peer-to-peer savings and payments platform.
In October 2019, New York State Assemblyman Ron Kim, Senator Julia Salazar and Professor Robert Hockett unveiled the bill known as the Empire State Inclusive Value Ledger (IVL) Establishment and Administration Act.
Hockett is a Cornell law professor who also consults for the International Monetary Fund (IMF) and the Federal Reserve Bank of New York. He drafted the bill and accompanying whitepaper.
The bill proposes a public payments system, digital wallets and a smartphone app, to reduce the role of banks as middlemen and address the unbanked and underbanked as well as marginalized communities. Banks, including their ATMs, and payment firms like Paypal and Venmo would be required to interoperate with the IVL currency.
The whitepaper suggested that the IVL system could be used for New York State residents to receive state tax credits, pensions and government benefits totalling $55 billion annually. Likewise, payments for taxes and licenses would be made using IVL into a pooled “Master Account”.
“The creation of a free public savings and payment platform that all New Yorkers can use, not only to pay for goods and services but also to transfer money directly to each other through, could fundamentally reshape New York into a fairer, healthier, wealthier, and more inclusive place for all,” Kim told New York newspaper, Queens Courier.
The IVL will leverage dollar-denominated tokens which can be used for everyday transactions such as groceries and public transport. Primarily, the platform will substitute a free system for third-party payment service providers which charge a commission.
One of the ideas mentioned in the whitepaper is to transform how undervalued and unvalued work is compensated. Potentially it includes mentoring, tutoring, environmental preservation efforts, caring for the elderly and ill and community service, which is often under-compensated. This would involve a more restricted community currency which may be interoperable with the IVL.
While the IVL is targeted at bringing all NY residents and businesses under a single public payments’ platform, the use case has been explored for enabling economic development in other regions and at a national level.
Within New York, it envisages a new Empire State Development Corporation to manage the system. For the national case, the administration would be run by the Treasury or the Federal Reserve.
The IVL proposes to partially disintermediate banks to cut costs, remove friction, and change behavior. During recessions households contract borrowing and spending, but so do banks, even when central banks relax policies. By reducing the role of middleman banks, the theory is that a central bank or rather the Federal Reserve might have a greater ability to stimulate spending.
This proposal contrasts with some of the latest discussions about Central Bank Digital Currencies (CBDC) which have concerns about disintermediating banks. For example, China’s planned CBDC is a two-tiered system and the initial token distribution – much like physical cash – is by the central bank via the banking network.
Meanwhile, the Federal Reserve has said it is keeping an eye on international CBDC developments. For now, it believes its planned FedNow system will address faster payments. However, the author of the IVL whitepaper noted: “Unfortunately, it (the Fed) continues to envisage making it ‘available to all’ only by making it available to banks, which do not include all.”
Apart from CBDCs, there are several local currency initiatives around the world. For example, in Kenya, the Red Cross societies of Norway, Denmark and Kenya have launched a two-year effort to deploy blockchain-based ‘local currencies’ to bolster trade within vulnerable communities.