The creation of a central bank digital currency “should only be pursued as a final option to achieve clearly defined public policy goals that cannot be achieved through payment innovations that leverage existing digital dollars,” he said. the ABA told the Federal Reserve in a comment letter today. The association pointed out that a CBDC would “fundamentally change the role of central banking in the United States and reshape the banking system,” and that currently no use cases have emerged to justify the creation of such a bank.
In its response to the Fed’s recent discussion paper on the CBDC, the ABA noted that the potential benefits of a CBDC that are often touted by proponents – such as promoting financial inclusion and boosting the dollar as a reserve currency – are uncertain, and alternative solutions to these challenges already exist. On financial inclusion, for example, the ABA pointed out that banks are already working to promote financial inclusion through the Bank On initiative.
The ABA has 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 funding is likely to go to the Fed. Additionally, a CBDC could inflate the Fed’s balance sheet and impede monetary policy transmission, introduce privacy and financial stability risks, and expand and politicize the Fed’s role, among other things.
Finally, the association pointed out that there are better ways to meet the challenges of the modern financial system without putting the financial system or the economy at risk via the creation of a CBDC. “As we assessed the likely impacts of issuing a CBDC, it became clear that the purported benefits of a CBDC are uncertain and unlikely to materialize, while the costs are real and acute,” said said the ABA. “Based on this analysis, we don’t see a compelling case for a CBDC in the United States today.”