Today U.S. Congress will hold a hearing on the Digital Dollar Dilemma to discuss the implications of a central bank digital currency (CBDC) and potential private sector alternatives. The Federal Reserve believes that a CBDC will help maintain the dollar’s unique role as the international reserve currency, and improve financial inclusion for millions of U.S. citizens. However, both the American Bankers Association (ABA) and the Bank Policy Institute strongly object to the Federal Reserve potentially launching a digital dollar.
The ABA noted that the dollar’s role in international payments is based on the strength of the U.S. rule of law, openness of the economy and the sophistication of it’s financial institutions. Hence, the ABA doesn’t believe a CBDC will help to maintain international dollar dominance. It also argued a CBDC would not further financial inclusion and is ultimately unnecessary in the U.S., where for most of the public the dollar is already digital.
A CBDC is a direct liability of the central bank, and would require moving significant funds from private banks to the Federal Reserve. According to the Federal Reserve, “[a] widely available CBDC could serve as a close substitute for commercial bank deposits”. However, the ABA argue this loss of deposits would impact banks’ ability to lend, putting a strain on credit markets and ultimately undermining the role of private banks. A CBDC would turn the Federal Reserve into an ‘advantaged competitor’, posing a serious threat, both to consumers and businesses.
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