The American Bankers Association (ABA), which represents banks handling $11 trillion in loans and $18 trillion in deposits, thinks that creating a central bank digital currency (CBDC) in the United States is "unnecessary" and would pose "unacceptable risks" to the financial system because the dollar "is already digital."
ABA rejects the notion of a US CBDC
The idea of establishing a central bank digital currency (CBDC) in the United States has drawn criticism from the American Bankers Association (ABA), who claim that it will cause disruptions to the banking system. The American Bankers Association (ABA) stressed in a prepared statement addressed to the U.S. House Financial Services Committee that the introduction of a digital dollar would be "unnecessary" and create "unacceptable risks and costs to the financial system."
According to the ABA, the U.S. dollar is already digital and supported by a variety of payment methods, such as debit and credit cards, Zelle, ACH, wire, RTP, Paypal, Venmo, Cashapp, and other fintech applications that make it easier to move money both inside and outside of the country.
The ABA says that Fednow, the financial institution-focused payment system, permits wholesale transactions 24 hours a day without requiring a new tool, even on the institutional side. But according to the group, banks are looking into using distributed ledger capabilities for payments without a CBDC's help or involvement.
A CBDC, according to the ABA, would weaken the function that banks play in the American financial system by acting as a "advantaged competitor to retail bank deposits," which would cause them to go to the Federal Reserve and restrict or end banks' ability to extend credit.
CBDC wholesale
The ABA acknowledges, however, that a different type of CBDC that is not intended for use by the general public may merit additional investigation. The financial sector may employ wholesale CBDCs in a variety of ways since they would only be used for transactions between financial institutions and the Federal Reserve.
The New York Federal Reserve Innovation Center conducted a pilot for this use case, in which payments between financial institutions were settled via a wholesale CBDC, with the assistance of BNY Mellon, Citi, HSBC, Mastercard, PNC Bank, TD Bank, Truist, U.S. Bank, and Wells Fargo. According to a results report released in July, the wholesale CBDC system "could operate successfully as a payment system on a new technology platform."
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