May 23, 2022

NAFCU to Fed: Costs of CBDC implementation would outweigh benefits

Federal ReserveNAFCU Senior Counsel for Research and Policy Andrew Morris wrote to the Federal Reserve Friday regarding its public discussion paper examining the pros and cons of and potential for a central bank digital currency (CBDC). The Fed's paper invited public comment, marking the first step in the discussion of whether and how a CBDC could potentially improve the safety and effectiveness of the domestic payments system.  

Morris noted that the hypothesized benefits of a CBDC are difficult to pinpoint whereas costly tradeoffs are potentially numerous. In addition, Morris explained that 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."

"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 explained 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," wrote Morris.

Read the full letter. NAFCU has engaged with the Fed on this topic, sent members a Regulatory Alert summarizing the discussion paper, and solicited member feedback to inform the association's comment letter. NAFCU will monitor this topic as discussion about CBDC continues.

Relatedly, the Department of Commerce Thursday issued a request for comment (RFC) on digital assets, acting upon a requirement under President Joe Biden's Executive Order on Ensuring Responsible Development of Digital Assets to engage in a consultative process. Through the RFC, the Commerce Department requests feedback on what impact, if any, global deployment of CBDCs would have on the U.S. digital assets sector, to what extend would the design of a U.S. CBDC impact the sector, and more.