Durrant Pate/Contributor
Banks are pulling away from any move by the US Federal Reserve at this time to develop an American Central Bank Digital Currency (CBDC).
In fact, the American Bankers Association (ABA), a major trade association representing banks across the US, is cautioning against a central bank digital currency. In a note to the US Department of Commerce, the American Bankers Association wrote, “the purported benefits of a U.S. CBDC are uncertain and unlikely to be realized, while the costs are real and acute.”
Its comments come as a possible CBDC has increasingly become the subject of political back-and-forth. The correspondence follows the Commerce Department’s request for public commentary in May in response to President Biden’s March executive order calling on federal agencies to report on digital assets.
ABA claims CBDC would rewire America’s financial system
The Commerce Department’s comment window closed on July 5.
The associated remarked, “the issuance of a CBDC would fundamentally rewire our banking and financial system by changing the relationship between citizens and the Federal Reserve….There are also significant trade-offs that must be made between different design choices.”
The bankers’ group contends that “these trade-offs are likely to undermine many of the key goals of a CBDC and make it essentially impossible for a CBDC to fulfil all the various purposes for which it is currently being discussed.” The ABA is a longstanding voice for the banking industry.
A frequent consideration is that CBDC could disintermediate retail users from the Federal Reserve, which would threaten commercial banks and financial privacy among individuals. Other respondents to the Commerce Department included crypto-focused trade associations like the Blockchain Association, the Chamber for Digital Commerce and the Association for Digital Asset Markets.
Less overtly hostile to CBDC development, the Chamber for Digital Commerce wrote “US CBDC should be designed to be complementary to other forms of digital money that have already been developed.”
Claims of Fed Reserve stalling
The US appears to be stalling on developing a central bank digital currency, with policymakers at the Federal Reserve discussing the technology but not revealing whether they’ve made any progress on the matter. At a Tuesday conference on the international role of the dollar, economic advisers and Fed Reserve bigwigs discussed digital assets and whether a CBDC could benefit the US.
According to a statement from the Fed, the “panellists generally agreed that technology by itself would not lead to drastic changes in the global currency ecosystem.” Several other countries are researching the utility of CBDCs, and China appears to be well ahead of the game with its digital renminbi: The country released a digital wallet for citizens in January.
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