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American banking lobby hits out at CBDC hype

American banking lobby hits out at CBDC hype

The American Bankers Association has adopted a defensive stance over the possible future issuance of a central bank backed digital currency (CBDC), warning lawmakers about real-world trade-offs that could significantly reshape the banking system.

While recognizing that CBDC proposals are often driven by laudable goals, the American Bankers Association has cautioned that the introduction of a CBDC could “fundamentally change the role of the central bank in the United States and reshape the banking system.”

In a statement for the record of a Senate Banking subcommittee hearing, ABA notes that choosing between the various CBDC designs requires “serious and complex policy tradeoffs” and that too often CBDC proponents take a “highlight reel” approach to describing CBDC, “cherry picking all the perceived benefits, while downplaying the serious risks to consumers and our financial system.”

The banking trade body points out that the US already has a robust and well-functioning financial system, with banks already providing lending, deposit-taking, and payments services to consumers.

After reviewing the benefits and risks of various proposals to implement a CBDC, ABA concludes that “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.”

Should policymakers decide to move ahead with development of a CBDC, the association urged them to do so with caution and carefully consider the risks and benefits of various CBDC designs.

“Given the additional complexity, delay, and transition costs involved in creating a new form of money, there are strong efficiency interests that suggest CBDC should only be pursued as a final option to meet clearly-defined public policy goals that cannot be achieved through payments innovations that leverage existing digital dollars. As of today, those use cases have not emerged,” ABA said. “If a viable use case for CBDC in the United States does emerge in the future, design choices must be carefully considered to ensure that the benefits as well as the risks of introducing a CBDC are fully appreciated.”

Comments: (3)

A Finextra member
A Finextra member 09 June, 2021, 12:06Be the first to give this comment the thumbs up 0 likes

One of the key challanges with CBDC is valadating the idenity of the accout holder. This is where the use of biometrics can have a postive impact on preventing fraud. The use of the biometric capability of the smartphone is good example of decenterilized biometrics that will inable CBDC transactions to be trusted. That is what our NoPass platform provides.

Martin Swanson
Martin Swanson - Atomic Wire - London 10 June, 2021, 12:41Be the first to give this comment the thumbs up 0 likes

I tend to agree with the ABA. "Payments Innovation" is really about achieving low latency processing with low (or zero) cost. There's an awful lot that can be done with existing technology to achieve that, and would be far simpler than CBDC and all the implications that entails for monetary policy. Plus, I'm not sure you really need a tokenized model if you expand central bank processing windows.

Mustafa Ali
Mustafa Ali - Tietoevry - Oslo 14 June, 2021, 22:57Be the first to give this comment the thumbs up 0 likes

Perhaps CBDCs should be used as a means to fulfil the obligation of states, central banks and commercial financial institutions towards general public to provide a robust, secure and transparent payments ecosystem that provides equal opportunities and benefit to general public, and eliminates money laundering - even if it costs big banks to implement.