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Lawmakers, Fed’s Brainard discuss CBDC during hearing
The House Financial Services Committee Thursday held a hearing to discuss the viability of a central bank digital currency (CBDC). Federal Reserve Vice Chair Lael Brainard, the only witness, stated that Congress needed to pass authorizing legislation before the Fed could issue a CBDC, and that even if this legislation was passed today, it would take at least 5 years to roll out. NAFCU has expressed several concerns with the development and implementation of a CBDC and urged the Fed to not proceed with its development.
NAFCU Vice President of Legislative Affairs Brad Thaler wrote to the committee ahead of the hearing to reiterate these concerns, noting that the Fed offering a CBDC directly to consumers would “constitute a massive expansion of their mission and threaten to erode the financial system.” NAFCU also joined with other financial trades to express concerns in a joint letter ahead of the hearing.
During her testimony, Brainard also stated that she saw the need for a digital dollar and that the Fed wanted any CBDC to be an intermediated system so that the existing financial services system would not be undermined.
Much of the questioning focused on the risk of deposit substitution, privacy concerns, stablecoins, and the risk of being left behind as the world innovates for the digital age. Both Democrats and Republicans stressed the importance of keeping the dollar as the reserve currency of choice.
Of note, Rep. Bill Posey, R-Fla., asked if a CBDC would erode the ability of financial institutions to continue lending via deposits, to which Brainard stated that the Fed was focused on making sure that a CBDC was an intermediated system and not a direct offering.
NAFCU will continue to keep credit union members on the latest updates regarding CBDC.