Central Bank Digital Currency (CBDC)

Position

  • ICBA opposes the creation of a retail Central Bank Digital Currency (CBDC) because the associated risks would outweigh its potential benefits. The policy goals that have been articulated in support of a retail CBDC would best be addressed through alternatives that are readily available in the market today.

  • As the Federal Reserve, Federal agencies, and Congress evaluate whether to create a retail U.S. CBDC, they must consider the risks, policy trade-offs, and challenges with the practicalities of introducing a retail CBDC in the United States, alongside the goals, use cases, technological considerations, and benefits.

  • Before instituting any form of CBDC, Congress would need to enact legislation authorizing its creation.

  • ICBA adamantly opposes the direct provisioning of retail accounts at the Federal Reserve.

  • The issuance of a retail CBDC would unfairly position the Federal Reserve as a direct competitor for bank deposits, obstructing banks’ ability to provide vital lending services to customers.

  • Essential to the analysis of any form of a U.S. central bank digital currency, ICBA urges the Federal Reserve to lead collaboration and broad engagement with a diverse array of stakeholders, including community banks.

  • ICBA is actively monitoring global research and experiments on wholesale CBDC and related tokenization systems to understand the full range of potential risks or benefits to community banks. We encourage policymakers to engage in dialogue with community bankers throughout the experimentation process.

Background

Many central banks, including the Federal Reserve, are actively exploring central bank digital currency, which is defined as a “new form of digital money, denominated in the national unit of account, that is a direct liability of the central bank.” Retail forms of CBDC would be available directly to the public to spend on everyday transactions. In contrast, a wholesale CBDC is intended to be limited to settlement between banks and central banks.

Community banks are strongly opposed to retail CBDC as it could destabilize the existing banking system that serves as the backbone of the US economy. The introduction of retail CBDC could erode the Federal Reserve’s ability to conduct monetary policy and interest rate control by altering the supply of reserves in the banking system and forcing the Fed to balloon its balance sheet.

Depositors may prefer CBDC over bank deposits in a crisis even if the CBDC has a less attractive rate of return, introducing the potential for bank runs. The Federal Reserve must preserve the vital role of community banks as economic engines of the U.S. economy.

Moreover, the policy goals of a CBDC can be achieved by other means. With the introduction of FedNow instant payment services and increased Same Day ACH adoption, Americans are enjoying faster transactions clearance and can expect further innovations to be built upon these rails. FedNow and RTP must be given a chance to succeed in achieving payments modernization.

The New York Fed Innovation Center is currently participating in a wholesale CBDC experiment with other central banks to see if it can improve cross-border payments with tokenized deposits. ICBA is closely monitoring this experiment and will remain engaged as policymakers evaluate the potential risks and/or benefits of these experimental systems. ICBA is concerned that the utility for these systems remains ambiguous, especially considering that alternatives to achieve the desired policy goal of faster and more efficient payments have not yet been exhausted.