Kofi Mensah The American Bankers Association (ABA), a prominent organization representing banks with custody of $18 trillion in deposits and involvement in processing $11 trillion in loans, has expressed strong opposition to the idea of introducing a central bank digital currency (CBDC) in the United States. In their view, such a move is both “unnecessary” and would bring about “unacceptable risks” to the country’s financial system. This stance was articulated in a prepared statement directed towards the U.S. House Financial Services Committee.
The ABA’s primary argument centers on the notion that the U.S. dollar is already in a digital form. They point out that the dollar is supported by a robust ecosystem of digital payment systems, including debit and credit cards, Zelle, ACH, wire transfers, RTP, as well as popular fintech apps such as PayPal, Venmo, and Cashapp. Furthermore, they emphasize the existence of the FedNow system, which provides around-the-clock wholesale transactions without the necessity for a new digital currency.
While acknowledging that some banks are exploring the potential use of distributed ledger technology for payments, the ABA contends that there is no need for a CBDC in this regard. They argue that introducing a CBDC could undermine the role of banks in the U.S. financial system by creating a “privileged competitor” to retail bank deposits, potentially leading to a migration of funds to the Federal Reserve. This, in turn, could restrict or even eliminate banks’ ability to extend credit to consumers.
However, the ABA does concede that a different type of CBDC, one not intended for general public use but rather for transactions between financial institutions and the Federal Reserve, may warrant further examination. These wholesale CBDCs could find various applications within the financial system. A pilot program involving payments between financial institutions utilizing a wholesale CBDC was recently conducted by the New York Federal Reserve Innovation Center, with the participation of several major banks and financial institutions. The results indicated that such a system could effectively operate as a payment mechanism on a new technology platform.
In summary, the American Bankers Association strongly opposes the issuance of a digital dollar, citing the existing digital nature of the U.S. dollar and concerns about the potential risks and disruptions it could introduce to the financial system. They suggest that wholesale CBDCs, designed for specific use cases within the financial industry, may be worth further exploration.
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Frequently Asked Questions (FAQs) about CBDC Opposition
What is the American Bankers Association’s stance on a U.S. CBDC?
The American Bankers Association (ABA) strongly opposes the introduction of a central bank digital currency (CBDC) in the United States. They argue that it is “unnecessary” and poses “unacceptable risks” to the financial system.
Why does the ABA consider a U.S. CBDC unnecessary?
The ABA believes that the U.S. dollar is already in digital form, with numerous digital payment systems in place, including debit/credit cards, fintech apps, and the FedNow system for wholesale transactions. They assert that there is no need for an additional digital currency.
What concerns does the ABA have about a U.S. CBDC?
The ABA is concerned that a CBDC could undermine the role of traditional banks in the financial system by becoming a “privileged competitor” to retail bank deposits. This could potentially lead to a migration of funds to the Federal Reserve, limiting banks’ ability to extend credit to consumers.
Does the ABA support any form of CBDC?
While the ABA opposes a CBDC for general public use, they do acknowledge the potential value of wholesale CBDCs, designed for transactions between financial institutions and the Federal Reserve. They suggest that these may have specific applications within the financial industry.
What recent developments have there been regarding CBDCs and the ABA?
The ABA points to a pilot program conducted by the New York Federal Reserve Innovation Center involving several major banks and institutions, which demonstrated the successful operation of a wholesale CBDC system for specific financial transactions. This suggests that such CBDCs could be viable in certain contexts.
More about CBDC Opposition
- American Bankers Association
- U.S. House Financial Services Committee
- FedNow
- New York Federal Reserve Innovation Center
- CBDC
