Retail CBDCs Can’t Get an ‘A’ Grade From US Lawmakers


The use of digital cash is growing.

Americans currently leverage digital payments for many — if not all — of their daily purchases, using credit cards, debit cards, prepaid cards and various mobile applications, for things as disparate as buying their morning coffee or their family a new car. 

More than 4 in 10 Americans (41%) say they don’t use cash at any point to pay for their typical weekly purchases.

But can money and payments be digitized even further? 

From a technical standpoint, yes. So the real question is, should they be?

That’s something the House Financial Services Subcommittee on Digital Assets, Financial Technology and Inclusion was trying to answer when it held a hearing last Thursday (Sept. 14).

During the hearing, called “Digital Dollar Dilemma: The Implications of a Central Bank Digital Currency and Private Sector Alternatives,” lawmakers across the aisle generally agreed that a U.S. retail digital dollar could stifle bank lending while granting excessive power to the Federal Reserve. 

Still, 93% of central banks across the globe are in at least some development stage of their own central bank digital currencies (CBDCs), which rely on blockchain-based architectures and are themselves a form of tokenized digital assets.

“As digital payment and currency technologies continue to rapidly expand and with Russia, China and nearly 130 countries worldwide already researching and launching some form of Central Bank Digital Currency, it is absolutely critical for the U.S. to remain a world leader in the development and regulation of digital currency,” Rep. Stephen Lynch, D-Mass., said in a statement.

“Central banks around the world are actively exploring and have already started launching CBDCs, often pointing to a list of purported benefits for citizens … A careful analysis shows, however, that these purported benefits do not stand up to scrutiny, partly because CBDC advocates fail to meaningfully distinguish CBDCs from the digital dollars that already exist,” said Norbert Michel, vice president and director of the center for monetary and financial alternatives at the Cato Institute, who was a witness for the House hearing. 

Read alsoFrom Paper Trails to Digital Footprints: The Ongoing Evolution of Payments

The Impacts of CBDCs

U.S. Treasury Under Secretary for Domestic Finance Nellie Liang, said in March 1 that “…CBDCs present opportunities to build a more efficient, competitive, and inclusive U.S. payment system.”

But retail CBDCs — in contrast to wholesale CBDCs, which are intended for interbank transfers and settlements — have come under strong political fire, with lawmakers introducing bills attempting to ban their development. 

For their part, the American Bankers Association released a statement on Wednesday (Sept. 13) accompanying the hearing last week that challenged the need for a retail CBDC, saying its potential costs outweigh its efficiency. 

Paige Paridon, senior vice president of the Bank Policy Institute and a witness for the House hearing, expressed doubts in her testimony about the usefulness of a CBDC. 

“On balance, we believe that — at this point — there is little evidence that a CBDC would bring measurable benefits to the U.S. economy, or that it is necessary to defend the dollar’s status as the world’s reserve currency, Paridon said.

By attracting deposits away from banks, particularly during a period of economic stress, a CBDC would likely undermine the commercial banking system in the United States, and severely constrict the availability of credit to the economy in a highly procyclical way,” Paridon added.

In her testimony, Wharton professor Christina Parajon Skinner told lawmakers that digital currencies carried the potential for abuse. 

“Because central banks don’t have the technology presently to offer cash-like privacy, a digital currency, unless it’s radically re-designed, will bring with it the ability for the state to monitor or surveil its citizens’ payments activities,” Skinner said. “Accordingly, CBDC is more a policy instrument than a property right, which makes it highly distinct from cash.”

Columbia Law School’s Raúl Carrillo, another witness, pushed back on this point. 

“The private sector does not protect data security or data privacy sufficiently. Crude opposition to CBDC based on surveillance grounds with no comparison to a real baseline is blinkered and leads us to throw the baby out with the bathwater,” he said. 

More hereCBDCs Compete for Relevance in Cross-Border Payments

The Future of Digital Currencies

“There is no support for a CBDC in Congress, except from those on the fringes who think somehow a CBDC might be an amazing solution to many unstated global problems,” Rep. French Hill, who serves as the chair of the House Financial Services Subcommittee on Digital Assets, Financial Technology and Inclusion, said in his opening remarks

Retail CBDCs faces controversy in Congress, and their impact around the world in countries that have launched them has been relatively spotty — all of which is adding up to an uncertain future in the U.S. 

Remarks by officials of the Federal Reserve don’t offer any reassurances.

Michelle Bowman, who serves on the Federal Reserve board of governors, emphasized consumer protection over CBDC innovation during a FinTech conference earlier this month, according to a report from the American Banker

At the same event, Federal Reserve Vice Chair for Supervision Michael Barr that the Fed “would only proceed with the issuance of a CBDC with clear support from the executive branch and authorizing legislation from Congress.”