Illustration: Aïda Amer/Axios

China is moving ahead "rapidly" with its version of a central bank-issued digital currency and the Fed looks to be prioritizing development and moving forward with urgency to produce one in the U.S. as well.

Why it matters: Digital currencies would provide a number of new policy tools to help stimulate the economy, including allowing Congress to send money more quickly and efficiently to Americans or facilitating direct transmissions from the Fed to consumers.

What's happening: Spending patterns by the unemployed and others who received funds through the CARES Act and private company progress on digital currencies "has intensified calls for [central bank digital currencies] CBDCs to maintain the sovereign currency as the anchor of the nation's payment systems," Fed governor Lael Brainard said in a speech earlier this month.

  • "Moreover, China has moved ahead rapidly on its version of a CBDC."

Watch this space: Separate House and Senate bills have emerged this year proposing the creation of digital currencies.

The big picture: Congress' inability to pass additional economic stimulus could put more pressure on the Fed to hold up the economy, and its current tools are ill-suited to do so.

  • The Fed's Main Street Lending Program, its most high-profile effort to directly help individual Americans and smaller businesses, has provided less than one half of 1% of its $600 billion mandate.
  • The growing talk of the K-shaped recession in the U.S. has led to concerns that the Fed is driving income and wealth inequality, and even prompted a Senate bill to give the Fed a third mandate to reduce inequality.

The intrigue: A digital currency could also help the Fed implement monetary policy by setting interest rates on consumers' accounts holding the digital currency — analysts say this also could be a more efficient way for the Fed to institute negative interest rates to boost consumption and inflation.

Between the lines: China already is far ahead of the U.S. and much of the developed world in mobile payments, and a new digital currency could provide another avenue to challenge the dollar's supremacy as the world's funding currency.

What's next: The Fed could provide some hints on the next steps in developing a digital currency at its annual Jackson Hole Symposium, which is set to kickoff virtually on Thursday.

Go deeper

The new small business lifeline: digital tools

Businesses leaders confirmed one fact about our shared new normal at the first of three Google virtual Small Business Matters Roundtable events on Thursday, Sept. 14: COVID-19 has made it essential for small businesses to digitize their operations once and for all.

Why it’s important: 93% of U.S. small businesses to medium-sized businesses (SMBs) felt an immediate downturn in customer demand, hours of operation and employee headcounts, a newly published Connected Commerce Council (3C) report in partnership with Google found.

First things first: The digital safety net for SMBs post-COVID

Jake Ward, President of the Connected Commerce Council (3C), during Google's virtual Small Business Matters Roundatable.

85% of SMBs say COVID-19 made them rethink their approach to digital tools.

Why it’s important: SMBs that are using digital tools, technology services and have access to online marketplaces are more likely to have survived the early days of COVID-19 and become resilient because of it, said Jake Ward, President of the Connected Commerce Council (3C).

3. Minority-led SMBs turn to digital tools because of lack of funding

Small businesses owned by minorities were more likely to make the most out of digital tools during COVID-19, according to the Digitally Driven study.

Why it’s important: These minority-owned businesses that quickly adapted to the new normal and have a higher comfort level with digital tools have become more focused on long-term business goals through the pandemic.