What is a digital dollar and how does it work? — Quartz

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Cash transactions are increasingly rare. More than half of transactions in the US involved cash in 2010. The number had dropped to 28% in 2020, even before the Covid-19 pandemic, which led to wider adoption of cashless and contactless payment among businesses.

But going cashless means a heavier reliance on private companies—banks, credit card companies, payment processors—all of which have delays and fees that hit poor people hardest. At the moment, a cash-free economy would exclude the 7.1 million Americans, or 5.4% of US households, that are unbanked, meaning they do not have a checking or savings account at a bank or credit union, according to the FDIC’s most recent study in 2019.

That has the US Federal Reserve thinking about backing its own digital version of cash. A Fed-backed digital dollar would in theory function like cash—without delays, processing fees, or onboarding requirements—and could usher unbanked or underbanked Americans into…

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