Later today, there will be a U.S. Senate hearing on central bank digital currencies (CBDC). The American Bankers Association (ABA) has submitted written testimony in advance of the hearing in which it questions the need for a digital dollar.
It claims current policy discussions are like a movie highlight reel that emphasizes the benefits while downplaying the risks. Instead, it points to the widely recognized side effect that a CBDC could draw away bank deposits, making lending more expensive if banks have to lean more on wholesale lending.
The ABA asserts that the United States already has robust payment systems and the country shouldn’t adopt a CBDC because others are doing so.
“After a careful review of the benefits and risks of various proposals to
implement a CBDC, it does not appear that a CBDC is well-positioned to enhance underlying financial capabilities or extend the reach of financial services in well-developed markets, at least not in the U.S. context, despite the overly optimistic promises from proponents,” reads the testimony.
An area where Democrats have shown particular interest in CBDCs is targeting the underbanked, a potential blindspot for the ABAs argument, especially given the problems with COVID support payments. However, the ABA claims that the ‘Bank On’ program provides free and low cost bank accounts to encourage financial inclusion, and the problem is a lack of awareness about the program.
It argues that banks are the engine of growth and any disruption might impact progress.
Stepping back, the responsibility of the central bank is to ensure financial stability. However, a central banker on the other side of the pond, John Cunliffe of the Bank of England, recently made a somewhat provocative but frank statement: “The bank of England doesn’t have the responsibility or brief to preserve the current model of banking.”
Nor does the Senate.