WASHINGTON—Both CUNA and NAFCU want to see other issues addressed and other steps taken before the Federal Reserve makes any moves related to a central bank digital currency (CBDC).
Both trades groups have sent letters to the Federal Reserve in response to its public discussion paper examining the pros and cons of and potential for a central bank digital currency (CBDC).
The letters were sent at the same time a bankers group has expressed strong opposition to any CBDC (see related story).
NAFCU Senior Counsel for Research and Policy Andrew Morris notedthat the hypothesized benefits of a CBDC are difficult to pinpoint, whereas costly tradeoffs are potentially numerous. In addition, Morris said NAFCU believes the net costs of a CBDC are expected to exceed the benefits, and that administration of a CBDC "will distract from the Federal Reserve’s dual mandate of achieving both stable prices and maximum sustainable employment."
‘Should Not Proceed’
"Accordingly, the Federal Reserve should not proceed with further development activities," wrote Morris. "Additionally, the Federal Reserve should not allocate resources towards investigating hypothetical modes of CBDC until it has identified clear regulatory parameters, with the input of Congress and key stakeholders, that are the necessary foundation for understanding CBDC design limitations."
Morris argued that sufficient evidence to justify development of a CBDC does not exist, particularly when there are alternative paths for achieving the benefits described in the Federal Reserve's paper. "Furthermore, achieving those benefits with a CBDC, instead of using existing financial sector infrastructure, would require tradeoffs that would likely have serious, negative implications for financial stability and the competitive viability of credit unions.”
CUNA’s Position
In its letter, CUNA said it appreciates the Federal Reserve’s exploration of central bank digital currencies (CBDCs), but believes a focus on the issues the currency intends to solve and a more refined outline of its design is necessary.
“We recognize this RFC is intended as an initial step in this process; we envision the conversation to be an iterative and extended process--one in which we are enthusiastic about participating. We have concerns, however, that under several scenarios the creation of a CBDC could significantly worsen the provision of financial services,” the letter states. “We want to continue having this conversation and to work collaboratively to identify ways credit unions can address the problems described in the RFC, whether through existing tools or through newly created financial instruments.”
CUNA further told the Fed the creation of a CBDC deserves “serious and exacting consideration,” and its implementation should be authorized by Congress.
“While there are no doubt opportunities for improvement, we believe most, if not all, can be addressed by innovations in the current financial services framework and through continued public-private partnerships, without the introduction of a novel digital currency that could destabilize the system.”
CUNA noted several scenarios that could “significantly worsen” the operating environment for credit unions. For example, the creation of a retail CBDC could result in significant deposit substitution that would negatively affect lending and investments, reduce credit supply, increase the cost of credit, and cause an economic slowdown, the trade association stated.
Are You Missing Out?
Don’t forget to check your Spam/Junk email folder if you haven’t been receiving your free, popular and daily CUToday.info news headlines.
And if you haven’t yet signed up for the new email solution on which CUToday.info has partnered with ResponseGenius, you can do so here. Signing up requires less than one minute of your time.
CUToday.info has received very positive response from readers following the move to an improved provider of the daily headlines, but many also noted they did need to go to their Spam/Junk folder and mark it as safe.
The new email solution has not only improved every reader’s delivery experience, but it also features a fresh, new format that is easy to read, especially on mobile devices.
Please note and/or make your IT department or email administrator aware the emails will be coming from the domains CUTodayinfo.com and CUTodayinfoReply.com