The Promises and Perils of Central Bank Digital Currencies

Chairman Himes, Ranking Member Barr, and members of the Subcommittee on National Security, International Development, and Monetary Policy, the American Bankers Association (ABA) appreciates the opportunity to submit a statement for the record for the hearing titled “The Promises and Perils of Central Bank Digital Currencies.” The topic of today’s hearing is an important one, with significant implications for our financial system, economy, markets, and most importantly for the American consumer.

Policymakers around the world, including at the U.S. Federal Reserve, are examining the potential opportunities and risks associated with issuing Central Bank Digital Currencies (CBDCs). A number of central banks are moving from conceptual research to developing pilot programs to explore the uses and efficiency of CBDCs. As this work progresses, there is a growing recognition that central bank digital currencies may be weighed down by very significant real-world trade-offs. The reality is that the dollar is largely digital today. The proposed benefits of CBDCs to international competitiveness and financial inclusion are theoretical, difficult to measure, and may be elusive, while the negative consequences for monetary policy, financial stability, financial intermediation, the payments system, and the customers and communities that banks serve could be severe.

The primary reason for this disconnect between the commonly-touted benefits of CBDCs and the more privately-assessed risks of re-engineering our financial system is that we tend to treat CBDCs superficially, as though a digital currency is a single concept, and one that could be implemented beside, rather than on top of, our existing system. Neither is true. A CBDC is not a single proposal; rather, it refers to a wide range of different proposals with varied potential designs, each with specific costs and benefits. Nor does CBDC fill a fundamental gap in our financial architecture that it could slide neatly into to perform a discrete role. Some designs are more disruptive than others, but all have the potential to transform the way money flows through our economy in ways both intended and unintended.

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