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According to letters addressed to the Federal Reserve by industry lobbyists on Friday, Wall Street bankers argue that the Fed's development of its own digital currency might shake the foundations of banking as we know it.
The Federal Reserve is seeking feedback on a research that looks into the future of a possible central bank digital currency (CBDC) issued in the United States. A government-backed digital currency might have major ramifications for the financial industry, as well as stablecoins issued by cryptocurrency companies.
"Current data strongly undermines the alleged benefits of a CBDC, indicating that a CBDC would dramatically destabilize the financial system, significantly damaging consumers and companies," said Greg Baer, who runs the Bank Policy Institute, one of Wall Street's Washington lobbying arms.
The American Bankers Association, a Washington-based banking trade group, predicted in its own letter that a digital dollar would result in "deposits accounting for 71 percent of bank funding going to the Federal Reserve."
According to the ABA letter, this would drive up the cost of funding in the banking sector to a "unsustainable" level.
The Fed board has been debating the merits of launching a digital currency, though members have tried to maintain a neutral stance, implying that any scheme should have the support of Congress and the administration. At his confirmation hearing last week, Michael Barr, President Joe Biden's pick for the next Fed vice chairman for supervision, shared this sentiment. On Monday, though, several new Fed board members were sworn in, thus ushering in the age of Biden appointments.
While a digital currency for the United States has been mentioned numerous times in congressional hearings and debates over legislation, no law has yet gained support that would encourage the Fed to implement it. Early discussions about a CBDC frequently address its potential impact on stablecoins, and Fed Chair Jerome Powell has stated that private stablecoins and a digital dollar might coexist.
"One of the most commonly mentioned reasons in support of a CBDC is that it would enhance financial inclusion," according to the BPI letter. "However, as discussed further below, we are unaware of any validated use case for CBDC that would help low- and moderate-income persons."
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