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Ahead of today’s House Financial Services Subcommittee on Digital Assets, Financial Technology and Inclusion hearing on the implications of a central bank digital currency (CBDC), NAFCU Vice President of Legislative Affairs Brad Thaler reiterated the association’s opposition to the currency’s development.

“The hypothesized benefits of a CBDC are difficult to pinpoint given the lack of specific policy direction in current proposals,” 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.

“…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.”

Thaler noted that the Fed offering a CBDC directly to consumers would “constitute a radical expansion of the Federal Reserve’s mission and involvement in the economy.” Other risks of a CBDC mentioned in the letter include:

• complicating existing private- and public-sector payments innovation for financial institutions;
• posing serious privacy concerns, eroding consumer privacy and the auditability of transactions; and 
• not increasing the transaction speed to cross-border digital payments – as it has been claimed to do.

“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.”

NAFCU has consistently opposed the development of a CBDC that is offered as a substitute for credit union or bank deposits, arguing credit unions represent a superior and safer alternative for advancing financial inclusion goals and promoting affordable access to payments. The association has supported legislative proposals to prohibit the Fed from issuing a CBDC and also shared its concerns with the Fed, Treasury, and Commerce Department.