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Home Newsbytes

ABA: No compelling case exists for U.S. CBDC

May 20, 2022
Reading Time: 2 mins read
ABA: No compelling case exists for U.S. CBDC

The creation of a central bank digital currency “should only be pursued as a final option to meet clearly defined public policy goals that cannot be achieved through payments innovations that leverage existing digital dollars,” ABA told the Federal Reserve in a comment letter today. The association emphasized that a CBDC would “fundamentally change the role of the central bank in the United States and reshape the banking system,” and that at this time, use cases have not emerged to justify the creation of one.

In its response to the Fed’s recent discussion paper on CBDC, ABA noted that the potential benefits of a CBDC that are often touted by proponents—such as promoting financial inclusion and promoting the dollar as a reserve currency—are uncertain, and alternative solutions to these challenges already exist. With respect to financial inclusion, for example, ABA pointed out that that banks are already working to promote financial inclusion through the Bank On initiative.

ABA also warned policymakers of the significant cost associated with offering a CBDC. Specifically, the creation of a CBDC could ultimately position the Fed as a competitor for bank deposits, which could cripple the flow of credit, the association said. ABA analysis shows that 71% of bank’s funding is at risk of moving to the Fed. In addition, a CBDC could balloon the Fed’s balance sheet and impede the transmission of monetary policy, introduce privacy and financial stability risks, and expand and politicize the role of the Fed, among other things.

Finally, the association emphasized that there are better ways to addressing the challenges of the modern financial system without putting the financial system or economy at risk via the creation of a CBDC. “As we have evaluated the likely impacts of issuing a CBDC it has become clear that the purported benefits of a CBDC are uncertain and unlikely to be realized, while the costs are real and acute,” ABA said. “Based on this analysis, we do not see a compelling case for a CBDC in the United States today.”

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