Wall Street asserts that a Fed-issued digital dollar will destroy banks.
The Federal Reserve is considering launching a CBDC similar to those of other nations, and bankers worry that this would be a risky move.
According to letters addressed to the U.S. central bank on Friday by industry lobbyists, Wall Street bankers argue that the Federal Reserve's creation of its own digital currency might undermine the fundamentals of banking as we know it.
The Federal Reserve solicited feedback on a research analysing the potential future of a central bank digital currency (CBDC) produced in the United States. A government-issued digital dollar might have far-reaching effects on the banking sector as well as stablecoins produced by cryptocurrency startups.
“Current research overwhelmingly undermines the purported benefits of a CBDC and instead indicates that a CBDC would seriously disrupt the financial system, significantly harming consumers and businesses,” said Greg Baer, who runs one of Wall Street’s lobbying arms in Washington, the Bank Policy Institute.
Another banking group in Washington, the American Bankers Association, predicted in its own letter that a digital dollar would mean “deposits accounting for 71% of bank funding are at risk of moving to the Federal Reserve.”
That would dramatically increase the cost of funding in the banking sector to an “unsustainable” level, the ABA letter said.
The Fed board has been evaluating the viability of adopting a digital currency, though officials have been cautious to maintain a neutral stance and have suggested that any proposal should have the support of Congress and the government. Michael Barr, President Joe Biden's nominee for the next Fed vice chairman for supervision, shared this sentiment at his confirmation hearing last week. On Monday, though, six new Fed board members were sworn in, thus ushering in the Biden administration.
Despite the frequent mention of a U.S. digital currency in legislative hearings and discussions, no law has yet gained traction that would urge the Fed to put it into operation. Early discussions on a CBDC frequently address its possible impact on stablecoins, and Federal Reserve Chair Jerome Powell has stated that he expects private stablecoins to coexist with a digital currency.
BPI noted in its letter that "one of the most commonly mentioned arguments in favour of a CBDC is that it would enhance financial inclusion; however, as discussed further below, we are unaware of any documented use case for CBDC that would help low- and moderate-income individuals."
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