Wall Street bankers argue that the Federal Reserve's introduction of its own digital dollar could shake banking as we know it to its foundations. That's according to letters industry lobbyists sent to the U.S. central bank on Friday.
The Fed asked for comments on a report examining the future of a possible central bank digital currency (CBDC) issued in the United States. A government-managed digital dollar could have profound implications for the financial sector, as well as for stablecoins issued by cryptocurrency companies.
"Current research overwhelmingly undermines the purported benefits of a CBDC, suggesting instead that a CBDC would seriously disrupt the financial system and cause significant harm to consumers and businesses," said Greg Baer, who heads one of Wall Street's Washington lobbying groups, the Bank Policy Institute.
Another Washington banking group, the American Bankers Association, predicted in its own letter that a digital dollar would mean that "deposits, which account for 71% of bank funding, would be at risk of migrating to the Federal Reserve."
This would raise funding costs in the banking sector to "unsustainable" levels, the ABA letter said.
The Fed's board has considered the logic of adopting a digital dollar, though officials have been careful to remain neutral and suggest that any plan should have the support of Congress and the administration. That was the position taken by Michael Barr, President Joe Biden's pick to be the Fed's next vice chairman for oversight, at his hearing last week. However, several new Fed board members were sworn in Monday, marking the official transition to the era of Biden appointees.
Although the introduction of a digital U.S. dollar has come up repeatedly in congressional hearings and legislative debates, no bill has yet emerged that would encourage the Fed to get it off the ground. Initial negotiations on a CBDC often discuss the potential impact on stablecoins, and Fed Chairman Jerome Powell has stated that he expects private stablecoins could coexist with a digital dollar.
The BPI letter goes on to say, "One of the most commonly cited reasons for a CBDC is that it would improve financial inclusion, but as discussed below, we are not aware of any substantiated use case for a CBDC that would benefit low- and middle-income people.