Banking Trade Groups Sour on Digital Dollar, Citing Drain on Credit

Wall Street lenders want the U.S. government to slow down on their plans for a digital dollar, Bloomberg reported Monday (May 23).

They think a virtual currency could end up draining “hundreds of billions of dollars” from the banking system.

There’s no official plan in place for a U.S. central bank digital currency (CBDC) yet, and the Bloomberg report noted how much of a hot button issue this has become, with crypto ballooning to a more than $1 trillion market. Meanwhile, stablecoins have become a concern for regulators, particularly lately after the collapse of the UST coin.

Though if the American CBDC does get made, the American Bankers Association and the Bank Policy Institute think it would be a competitor for private bank deposits, and would make credit less available for businesses and households.

The trade groups were responding to a Fed discussion paper from earlier in the year which looked into the benefits and risks of a digital dollar.

The Bloomberg report noted that the supporters of a digital dollar say making one would entrench the dollar’s dominance more, with countries like China already moving forward with their own CBDCs.

See also: EU Regulators Lash Out at Stablecoins While Boosting CBDCs

The question of how to regulate digital currencies has been mulled globally. PYMNTS wrote that stablecoins’ trouble has led European Union regulators to look at ways to boost alternatives to private digital money, including an official digital euro.

The report noted that two top central bank officials had criticized crypto assets for being possibly disruptive if they’re not regulated.

One of them was Bank of France Governor Francois Villeroy de Galhau, who said crypto assets should be “interoperable” in a consistent way across any jurisdictions. He also said he thought stablecoins were “somewhat misnamed.”