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NAFCU Vice President of Legislative Affairs Brad Thaler wrote to the House Financial Services Committee before its hearing today on the risks and benefits of an official Federal Reserve central bank digital currency (CBDC). In the letter, Thaler voices NAFCU’s concerns with a CBDC, urging the Fed to not proceed with its development.

“We believe the hypothesized benefits of a CBDC are difficult to pinpoint given the lack of specific policy direction in current proposals,” wrote Thaler. “[…] Many of the design features necessary to achieve certain benefits come with serious tradeoffs that could negatively impact credit unions and pose broader financial stability risks.

“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,” added Thaler.

Thaler noted that the Fed offering a CBDC directly to consumers would “constitute a massive expansion of their mission and threaten to erode the financial system.” 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.”

Read the full letter and watch the hearing live at 12:00 p.m. Eastern. NAFCU has engaged with the Fed on this topic, sent members a Regulatory Alert summarizing the Fed’s discussion paper on the topic, and solicited member feedback to inform the association's comment letter. NAFCU will monitor this topic as discussion about CBDC continues.