Ladies and Gentlemen:
The Bank Policy Institute[1] appreciates the opportunity to comment on the Board of Governors of the Federal Reserve System’s report “Money and Payments: The U.S. Dollar in the Age of Digital Transformation.” We support the Federal Reserve’s resolve to take a careful, data-driven approach to considering “whether and how a CBDC could improve the safe and efficient domestic payments system.”[2] Because many uncertainties remain, and because the available evidence suggests that a CBDC could present serious risks to financial stability, BPI supports the Board’s conclusion that it “will only take further steps toward developing a CBDC if research points to benefits for households, businesses, and the economy overall that exceed the downside risks, and indicates that CBDC is superior to alternative methods.” In addition, for both legal and policy reasons, we agree that the Board should only pursue a CBDC with the consent of both the executive and legislative branches.
The Board’s paper provides a high-level overview of some of the potential benefits and risks that an intermediated, account-based CBDC could pose, and also references potential alternative means of achieving those benefits. The paper also acknowledges the serious risks to the U.S. economy and financial system that could be posed by an intermediated CBDC.[3] In short, by attracting deposits away from banks, particularly during a period of economic stress, a CBDC likely would undermine the commercial banking system in the United States, and severely constrict the availability of credit to the economy in a highly procyclical way.
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[1] BPI is a nonpartisan public policy, research and advocacy group, representing the nation’s leading banks and their customers. Our members include universal banks, regional banks and the major foreign banks doing business in the United States. Collectively, they employ almost 2 million Americans, make nearly half of the nation’s small business loans and are an engine for financial innovation and economic growth.
[2] Board of Governors of the Federal Reserve System, “Money and Payments: The U.S. Dollar in the Age of Digital Transformation” (Jan. 14, 2022), available at: The Fed – Money and Payments: The U.S. Dollar in the Age of Digital Transformation (federalreserve.gov).
[3] Money and Payments at 17.
