A U.S. central bank digital currency, or CBDC, would be a “threat to core funding to the banking industry,” Jim Reuter, ABA board member and president and CEO of FirstBank in Lakewood, Colorado, said on a new episode of IntraFi Network’s Banking with Interest Podcast.
“One of the number one ways we make money as an industry is net interest margin. The best way to maximize your results is to have low cost core deposits that are sticky,” Reuter explained. “I worry that if there is a wallet you can have with the Federal Reserve . . . and they allow people to access that money directly—even if it’s through their bank—it’s still a liability of the Federal Reserve, so those funds are technically not on your balance sheet to be used to make loans in the community and service your customers.”
As policymakers explore the possibility of implementing a CBDC in the U.S., Reuter warned that any such effort—including capping the amount of money depositors can hold directly with the Fed—would have a detrimental effect on local communities. “If you do not keep a two-tiered system where the deposits are here and we’re working with our customers locally to figure out how to best put that money to work, you’re really losing a foundational element in every community.”
ABA has cautioned that the introduction of a CBDC could “fundamentally change the role of the central bank in the United States and reshape the banking system,” and continues to urge policymakers to seriously weigh the potential benefits of a CBDC with the significant risks it would pose to consumers and financial markets.