Chairman Hill, Ranking Member Lynch and Honorable Members of the Subcommittee, thank you for inviting me to testify. I am Paige Pidano Paridon, senior vice president and senior associate general counsel at the Bank Policy Institute (BPI). BPI is a nonpartisan policy, research and advocacy organization representing the nation’s leading banks. BPI members include universal banks, regional banks and major foreign banks doing business in the United States.
Technological innovation over the last several years has led to the emergence of new entrants offering payments services and new technologies that have increased the speed of payments, clearing, and settlement and new forms of digital money. Reflecting a variety of concerns about this innovation, central banks have been studying and exploring the potential benefits and risks of central bank digital currencies (CBDCs). Fortunately, the Federal Reserve Board has taken a deliberate approach and has recognized that as both a legal and policy matter, Congress should decide whether the United States should have a central bank digital currency. That question is a difficult one, involving a myriad of competing concerns. On balance, we believe that — at this point — there is little evidence that a CBDC would bring measurable benefits to the U.S. economy, or that it is necessary to defend the dollar’s status as the world’s reserve currency. Furthermore, a CBDC comes with a series of difficult policy and operational issues and risks creating financial instability. Other countries, most notably the European Union, may experiment with a CBDC, and we have time and good reason to observe that process before proceeding with any possible CBDC in the United States.
Currently, the currency of the United States takes the form of notes and coins, generally referred to as cash. Central bank money includes cash, a “physical form” of money, but mostly takes digital form as reserves held at the Federal Reserve Banks. These reserves are used by banks to clear and settle obligations between each other and are used by the Federal Reserve to implement monetary policy. Commercial bank money (sometimes called private money) is also digital in form and takes the form of deposits at insured depository institutions. Thus, debit card transactions at point of sale, Zelle or Venmo payments and electronic payroll deposits are all examples of transfers of commercial bank money.
CBDCs are a form of digital money, denominated in the national unit of account, which is a direct liability of the central bank. A CBDC can take one of two general forms — a wholesale CBDC or a retail CBDC. A wholesale CBDC is designed for use only by and among financial intermediaries. A retail CBDC is designed for use by the wider economy, including consumers and businesses.
Some people describe a CBDC as a necessary step to modernize our form of money from physical to digital and they talk about the need for the U.S. to have a “digital dollar,” but this is total mischaracterization. The fact is that today, a large and growing majority of U.S. dollar transactions already are conducted with digital money. Consider that, vault cash aside, every dollar on deposit at a U.S. bank is in digital form and thus a “digital dollar.”
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