ABA warns against CBDC adoption

A central bank digital currency is unnecessary in the U.S. and would present unacceptable risks and costs to the financial system, the American Bankers Association said today in a statement to the House Financial Services Subcommittee on Digital Assets, Financial Technology and Inclusion. The subcommittee will hold a hearing Thursday on the effects of CBDC adoption and possible private sector alternatives to the currency. In its comments, ABA noted the dollar is already digital, and it is unclear how issuing a CBDC would improve financial inclusion or achieve the other laudable goals of its proponents.

“On the other hand, issuance of a CBDC would fundamentally change the relationship between citizens and the Federal Reserve, undermine the important role banks play in financial intermediation, exacerbate economic and liquidity crises, and impede the transmission of sound monetary policy,” ABA said.

ABA added that there are possible alternatives, such as a wholesale CBDC recently mentioned by Fed Governor Michelle Bowman, which could be used in the settlement of certain financial market transactions and for processing international payments. The concept “should be carefully evaluated before moving forward with a CBDC,” the association said.