Could Cryptocurrency be a Solution for Government Disbursements?
- President Trump issued an executive order calling for a shift by federal government agencies away from paper checks
- The deadline for this shift is September 30
- The Center for Taxpayer Rights expressed concerns on behalf of underbanked and unbanked Americans
As reported in Payments Dive, the U.S. Treasury Department is facing significant pushback after revealing its plan to transition the federal government away from paper checks and towards electronic payments. In a June 30 letter, the Center for Taxpayer Rights expressed concerns that this change could prevent vulnerable, unbanked Americans from accessing critical tax refunds and Social Security benefits.
The New York City Department of Consumer and Worker Protection raised concerns about the possibilities of New Yorkers who rely on paper checks not receiving their benefits and electronic fund transfer recipients falling victim to scams.
The US is facing challenges similar to the UK, where the Payments Council initially planned to close the check/cheque clearing system by 2018, aiming to “cancel the check” and move entirely to digital payments. However, these plans were scrapped in 2011 after widespread concern that vulnerable populations—particularly older individuals and those less technologically adept—would be excluded from essential payments.
A Barrier for the Unbanked
The Aspen Institute's Financial Security Program also warned that households without bank accounts, often due to mistrust, costs, or a mismatch to their needs, would struggle to receive government payments without the paper check option.
In 2023, about 5.6 million American households, equal to about 4.2%, were unbanked, meaning they don't have an account with a financial institution, while about 19 million households, or 14.2% were underbanked, meaning they had an account, but mainly used nonbank services for their financial needs.
The American Forest & Paper Association weighed in, pointing out that Americans with disabilities, rural consumers, and older adults are most likely to be left behind by the transition, as they are more likely to be unbanked. Additionally, The Center for Taxpayer Rights raised concerns about the use of stored-value debit cards as a replacement for checks, noting they are a preferred payment method for criminals collecting fraudulent tax refunds.
Overall, the Treasury faces a delicate balancing act as it seeks to modernize government payments. Advocacy groups are urging the department to work closely with cities and partners to ensure the transition is slow and intentional, providing unbanked and underbanked Americans with accessible digital options to avoid further entrenching financial barriers.
Cryptocurrency: A Disbursement Solution?
While making bank accounts mandatory for government payments may increase efficiency, reduce costs, and help promote financial inclusion, such a policy risks marginalizing the most vulnerable recipients who already face obstacles in accessing mainstream banking and the digital economy.
Could cryptocurrency be the solution?
No state or federal agency currently disburses government benefits or payroll directly as cryptocurrency. However, the Federal Government is experimenting with the payment system. We've also seen several major banks offering cryptocurrency services, including JPMorgan, Bank of America, and Citibank.
The use case for the underbanked is simple: All you need is a cell phone and an app. Over 250+ major retailers accept cryptocurrency as payment -- and it's growing. Individuals also have the ability to receive and send money across the world in an instant through XRP and Ripple.
However, cryptocurrency is not without its downsides. The most problematic is turning cryptocurrency into fiat (cash), which typically has network fees, transaction fees, and potentially other charges like withdrawal fees.
Providing society with as many options as possible benefits the people. While the government is looking to be more efficient, they still must -- like financial institutions -- serve the people and provide preferred alternatives. This includes payment channels like checks and newer options like cryptocurrency.