The Inclusive Value Ledger: A Free Digital Banking and Payments Platform Adaptable to Local, State, and Federal Use

21 July 2020

Robert Hockett

1. Introduction

Since Facebook’s Libra announcement of June 2019, monetary authorities worldwide have redoubled efforts to develop central bank digital currencies (CBDCs). These efforts were underway, albeit at a leisurely pace, even before Libra. Facebook’s announcement simply accelerated developments that were going to occur in any event.

The sudden slowdown in productive activity wrought by the Covid pandemic of 2020 makes matters more urgent even than Libra did. The social distancing measures necessitated by the pandemic are antithetical to productive activity, including to the pay people earn through productive activity. Economies worldwide are accordingly confronted by simultaneous supply-side and demand-side shocks.

To arrest and reverse these shocks, simultaneous demand and supply side measures must be taken as quickly as possible. This means our capacities to store and to transfer value – to make and receive payments and disburse moneys – must be sped up as well. In so doing, we will be optimizing not only a pandemic response architecture, but also the payments infrastructure with which we shall all live and prosper long after the present pandemic is past.

Digital currencies and associated payment platforms are optimal means to the optimization in question. A currency is just ‘that which pays’ in a payments system, hence ‘that which counts’ in a system of value accounting. To design a digital currency is accordingly to design a literal speed-of-light mechanism of value storage and transfer. It is to supply a banking and financial architecture by supplying a commercial architecture, as is always the case in any ‘commercial society’ or ‘exchange economy’ such as our own.

Happily, some U.S. cities and states, as well as the U.S. Congress, are on to this. For the past year, state and municipal officials nationwide have been considering a proposal I made back in 2018. And since late March of this year, Democrats and Republicans in both chambers of Congress have been weighing proposals, including my own, to legislate into existence what I call a ‘Democratic Digital Dollar’ and associated system of digital wallets.

My ‘Inclusive Value Ledger’ (IVL) Plan, which has colloquially come to be known as ‘the Public Venmo plan’ ever since two visionary New York state legislators – Assemblyman Ron Kim and State Senator Julia Salazar – proposed my draft bill to put it into effect, can be instituted by municipal, state, or national authorities, and at the national level can be administered either by the Fed or by Treasury.

For reasons rooted in both the ‘need for speed’ and the need for payment system inclusion in the midst of pandemic, states and cities should move forward with this plan irrespective of how expeditious Congress proves in taking it up. For the same reasons, I believe we’ll do best to begin with the Treasury once we act at the federal level, then migrate over to the Fed at a measured, deliberative pace. I’ll elaborate on these reasons as I sketch-out my IVL Plan in its local, state, Treasury and Fed renditions.

2. The IVL ‘Chassis’

Let us begin by first sketching the basic structure that a maximally efficient digital payment platform and wallet system should take. We can borrow a metaphor from the automotive sector and call this structure the plan’s ‘chassis,’ onto which any number of distinct ‘bodies’ selected by any level of government can then be installed.

2.1. Basic Architecture

The plan’s architecture is strikingly simple, requiring but two implementary steps. Every person and business receives a smartphone- or smart-device-accessible digital wallet, with both (a) what I call ‘vertical’ connectivity to the public fisc (Implementation Step 1), and (b) what I call ‘horizontal’ (think P2P) connectivity to all other wallets (Implementation Step 2). Wallet holders are thus first enabled ‘vertically’ to pay taxes, licensing fees, and other remittances, as well as to receive tax refunds, program moneys, and other disbursements over the IVL. Then they’re enabled ‘horizontally’ to make real time payments to one another over the same.

Diagrammatically, things look like this:

Figure 1: IVL Chassis

IVL Chassis

In the diagram, non-arrowed lines represent institutional linkages and arrowed lines represent payment instructions and associated value flows. A payment occurs when the Payor instructs the Master Account Administrator, via a chip card, strip card, or smart device payment app (Payment Step 1), to debit her own wallet account in the Master Account and correspondingly credit the Payee’s wallet account in the Master Account (Payment Step 2).

At Implementation Step 1 (the ‘vertical’ stage) of IVL Plan implementation, counterparties in any transaction will comprise one public and one private sector party. At Implementation Step 2 (the ‘horizontal’ stage) of IVL Plan implementation, all wallet account holders in the system, public sector or private sector, will be able to make and receive payments to and from one another in the same manner.

2.2. Virtues of the IVL Chassis

The reasons to put a plan like the IVL Plan into place are many, and are only supplemented, not supplanted, by crisis-rooted needs to get stimulus moneys to hard-hit American businesses and individuals in non-paper form as expeditiously as possible during the present pandemic.

2.2.1. Inclusion

First, in any self-professed ‘commercial society’ and ‘exchange economy’ such as our own, a payments system must be considered an essential public utility, which justice requires we make freely usable by all. People don’t pay to use sidewalks, nor do they or small businesses pay to use nickels or dollar bills. Neither, then, should they have to pay to use digital payments media as these now supplant paper currencies. Call this the justice or public utility reason for IVL.

2.2.2. Efficiency

Second, we measure the size and the growth of our economy by reference to transaction volume. It follows that a more seamless and efficient payments system, by enabling more rapid transacting and hence larger transaction volumes within any time interval – what economists call ‘money velocity’ – means greater growth and a larger economy over time. So, of course, does greater inclusion itself. Call this the growth or efficiency reason for IVL. Justice and growth thus converge to commend it.

2.2.3. Monetary Policy

Third, an IVL system, if administered by a nation’s fiscal or monetary authority – in the US, that’s either Treasury or the Fed – will enable much faster fiscal stimulus or monetary policy transmission than does our present Baroque system of middlemen whom we hope will transmit inexpensive credit to consumers. Instead we drop digital ‘helicopter money’ into our digital wallets, thereby sidestepping the notorious ‘pushing on a string’ and diversion-to-speculative-use problems that plagued stimulus efforts in 2008.

In more ordinary times, we even can offer interest on savings in wallets, whereupon we can move those rates up or down when we must slow down or speed up economy-wide spending activity. Indeed we can even then ‘micro-target’ specific sectors of the economy where spending appears to be either overheating or dangerously cooling, another prospect considered below and more fully fleshed out in other work.

2.2.4. Valuing ‘Care Work’

Fourthly, an IVL system will enable public authorities, including cities and states, to begin disbursing monetary rewards to ‘care work’ providers and other contributors to the public good that our present payment arrangements render too difficult for most governments to adjudge feasible. A teenager who helps grade-schoolers with homework after school, for example, or someone who looks in on and cares for a ‘shut-in,’ can quickly transmit digital ‘proof of work’ (POW) to a city, state, or even federal social services authority and receive spendable IVL credits – what I call ‘Democratic Digital Dollars,’ or ‘3Ds,’ in return. Given the long-term savings to municipal, state, and federal budgets that such work demonstrably affords, crediting it over the IVL is readily justified even on long-term fiscal grounds, let alone ‘Good Society’ grounds.

2.2.5.  Data Privacy

Finally, going digital offers financial data privacy benefits too. Unlike private sector banks and many online payment service firms, public sector administrators of the IVL do not do what they do for profit – there are no non-criminal ‘carrots’ to entice ‘data harvest’ and sale. Such administrators also are subject to 4th Amendment constraints as state actors, unlike, say, Wells Fargo or Facebook – there is a ‘stick.’ Adding more sticks through the criminal law, moreover, along with especially hard encryption for all transactions in amounts lower than what we already require banks and other institutions to report under anti-terrorism and anti-money-laundering law, is easily done on an IVL system.

No matter how one looks at the matter, then, it seems clear we should do this. The question, accordingly, is where best to administer the IVL. Should it be managed by cities, states, or our federal government? And if it’s the latter, should it be the Fed or the Treasury?

3. State and Municipal IVL Plans

As noted above, states or their subdivisions inclined to act quickly in capitalizing on IVL technology need not await federal action. Since all of the advantages listed above inhere in the chassis itself rather than in any particular rendition of it, moreover, cities and states have multiple reasons not to wait. This is even truer in 2020 than earlier. For cities and states have become the nation’s ‘first responders’ in addressing the national Covid pandemic, and as users rather than issuers of our national currency are experiencing tight budgets in consequence.

Even apart from pandemic response, many American states and their subdivisions experience chronic shortages of dollar-flow into their jurisdictional domains a – a fact that underwrites calls to adopt ‘community’ or ‘complementary’ currencies. With an IVL platform, the dollar itself becomes a community currency. For local spending by local residents even of income received from elsewhere grows easier. And states and cities are able directly to ‘monetize’ care work of the kind noted above, which in the long run improves state and city fiscal positions.

Structurally speaking, a city or state IVL plan looks just like the chassis schematized in Figure 1. All that changes is the identities of some of the entities brought together in that structure:

Figure 2: State- or Municipal-Administered IVL System

State- or Municipal-Administered IVL System

In the diagram, all is as it was in Figure 1, save that now the IVL Master Account is administered by a state or municipal authority. The latter receives payments – such as taxes, fines, fees, etc. – over the system. It disburses payments – such as refunds, program benefits, and care work – over the same. And all participants, be they individuals or businesses, are then able to make P2P payments among themselves as well.

4. Treasury and Fed IVL Plans

As noted above, the IVL can be adopted at the federal level as well. And the federal rendition of the IVL Plan for its part is adaptable to both Fed and Treasury use. Let’s consider these prospects briefly in turn.

4.1.  The ‘TreasuryDirect’ / ‘Digital Greenback’ Plan

A Treasury-administered IVL would simply add two functionalities to Treasury’s already existing network of ‘TreasuryDirect’ accounts (TDAs) – a long-standing but little-known facility through which any citizen or legal resident of the US can already open a digital account through which to transact with Treasury in its own securities 24/7. To convert this existing platform into a universal digital payment platform, we need take only two simple measures.

The two steps, the first of which again is just Implementation Step 2 of the IVL chassis schematized in Figure 1, are these: First we add ‘horizontal’ peer-to-peer (P2P) connectivity between TDA digital wallets to the already existing ‘vertical’ connectivity between Treasury itself and all TDAs, in the senses explained above. And second we confer legal tender status on the ‘Zero-Percent Certificates of Indebtedness’ that Treasury already issues through TDAs – call them ‘Treasury Dollars,’ or ‘Digital Greenbacks’ in honor of the national dollar that Treasury issued from the mid-1860s till the Fed’s establishment fifty years later.’ The upshot is depicted in Figure 3.

Figure 3: US Treasury-Administered TDA / ‘Digital Greenback’ Payments System

US Treasury-Administered TDA / ‘Digital Greenback’ Payments System

Again all is as it was in Figures 1 and 2, save that Treasury is administering the system. At Implementation Step 1, counterparties in any IVL transaction will comprise the Treasury and one private sector party, be it an individual or a business. As with the state and municipal versions, so here participants will be able to pay taxes, fees, and the like directly to Treasury, and will be able to receive tax refunds, program benefits, and the like in the same manner.

At Implementation Step 2, all TDA wallet holders in the system, public or private, will be able to make and receive payments to and from one another over the same network. This is all that need be added to TreasuryDirect wallets now to convert them to universally usable value-storage and –transfer (‘payment’) media. And the US Digital Service, a federal agency housed in the executive branch of our federal government, avers it could operationalize all of this within weeks, not years.

4.2. The ‘FedWallet’ IVL Plan

While TreasuryDirect seems the obvious route to go in digitizing the dollar in the short run, we might nevertheless wish to migrate any national IVL system over to the Fed in the longer run. The primary reason for doing so would be to keep the digital dollar fully integrated, under one administrator, with the nation’s broader monetary policy apparatus and payments system, both of are presently conducted and administered by the Fed.

What I’ll call a ‘FedWallet’ rendition of the IVL Plan would simply alter the compositions of the Fed’s own and private sector banks’ current balance sheets in a couple of straightforward ways.

First, the Fed IVL Master Account would simply be (a large portion of) the liability side of the Fed’s balance sheet. Payments among businesses and individuals would then manifest as shifting allocations on that liability side of the Fed balance sheet (see Figure 5, below). Second, insofar as individual wallet accounts subsumed within that Fed IVL Master Account were employed as transaction accounts by their holders, there would be a corresponding reduction in the sizes of private sector bank balance sheets.

Diagrammatically, then, in going the Fed route for an IVL system we would move from a banking system like that depicted in Figure 4 to a banking system like that depicted in Figure 5 where money flows and associated assets and liabilities are concerned. The payment platform component of the Plan would ‘fit in’ to the structure in the manner depicted in the lower left-hand corner of the diagram. It should be borne in mind that all entities represented above the Master Account box in the diagram are among the Account Holders, hence Payors and Payees, represented in the diagram.

Figure 4: Current Fed/Bank/Depositor/Issuer Arrangements & Financial Flows

Current Fed/Bank/Depositor/Issuer Arrangements & Financial Flows


Figure 5: Reformed Fed/Bank/Depositor/Issuer Arrangements & Financial Flows, with Fed-Administered ‘FedWallet’ IVL Platform

Reformed Fed/Bank/Depositor/Issuer Arrangements & Financial Flows, with Fed-Administered ‘FedWallet’ IVL Platform

Once again all is as seen in Figures 1, 2, and 3, with the sole difference being that the system is now integrated into the Fed / private sector bank nexus that constitutes the national banking and payments infrastructure. This additional complication of course necessitates careful planning and sequencing. Hence my recommendation that cities, states, and the US Treasury adopt IVL plans immediately, with the latter to be migrated over to the Fed in due course.

Insofar as we go this route, we shall recapitulate in the digital currency space our previous monetary development in the paper currency space. The latter proceeded from (1) state-chartered and –regulated banks issuing their own paper ‘bank notes’ (the earlier version of our current system of privately issued crypto-currencies) before 1863, through (2) nationally chartered and –regulated banks issuing a national bank note (the ‘Greenback’) administered by the US Treasury from 1863 to 1913, to (3) the Fed-issued and –administered ‘Federal Reserve Note’ (a.k.a. ‘dollar bill’) used today.

5. Conclusion

The technology involved in establishing IVL systems will not be trivial to build, but neither will it be particularly daunting to build. It has been done before, by multiple firms and networks for multiple purposes, over the years. All that differs now is that we are doing this for a forthrightly public purpose – that of installing a universally accessible, fee-free and frictionless, state-of-the-art national value-storage and -payments architecture.

As noted above, this is desirable in all times, not only crisis times. So much the better, then, that in doing this we will also be opening saving and paying to 50 million unbanked and underbanked households, businesses, and individuals in need of immediate aid during the current crisis and any subsequent crises.