WASHINGTON—Ahead of this week’s House Financial Services Subcommittee on Digital Assets, Financial Technology and Inclusion hearing on the implications of a central bank digital currency (CBDC), NAFCU has again expressed its opposition to the development of any CBDC, saying the net costs will exceed the benefits.
“The hypothesized benefits of a CBDC are difficult to pinpoint given the lack of specific policy direction in current proposals,” Vice President of Legislative Affairs Brad Thaler wrote. “Moreover, many of the speculative benefits associated with a CBDC, such as greater payments efficiency or financial inclusion, can be achieved through less costly and more reliable alternatives: the existing financial sector infrastructure of credit unions or the Federal Reserve’s own payment systems.
‘Serious Tradeoffs’
“…CBDC design features necessary to achieve cash-like functionality come with serious tradeoffs that could negatively impact credit unions and pose broader financial stability risks,” Thaler added. “In some cases, those tradeoffs are difficult to anticipate because underlying regulatory policies—such as what balance to strike in terms of protecting consumer privacy, or how to guard against retail deposit substitution—are not yet developed.”
According to Thaler, a move by the Fed to offer a CBDC directly to consumers would “constitute a radical expansion of the Federal Reserve’s mission and involvement in the economy.”
Additional Points Raised
Thaler told the committee a CBDC would also:
- Complicate existing private- and public-sector payments innovation for financial institutions
- Pose serious privacy concerns, and erode consumer privacy and the auditability of transactions
- Not increase the transaction speed to cross-border digital payments – as proponents are claiming
A ‘Distraction’
“NAFCU expects that the net costs of a CBDC will 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,” concluded Thaler. “Accordingly, the Federal Reserve should not proceed with further development activities at this time.”
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