Banker Participation Needed: Central Bank Digital Currency


On January 20, 2022, the Federal Reserve Board (Fed) released its long awaited report on a possible Central Bank Digital Currency (CBDC) for the United States. The Fed’s report is framed by the Fed as not advancing a specific outcome and as beginning a more formal public dialogue about the possible benefits and risks of a CBDC. In connection with the report, the Fed also released a request for information seeking public comment on future action, with comments due on May 20, 2022. Definition of CBDC: For the purposes of its paper, the Fed defines a CBDC as “a digital liability of a central bank that is widely available to the general public.” They note that while Americans have long held money in a digital form (like bank accounts,) a CBDC would differ because it would be a liability of the Federal Reserve, not a commercial bank. A CBDC would be a government product created to directly compete with OBL members banks pulling deposits out of your community to sit directly at the Fed. The OBL has analyzed the report and made some recommendations for bankers to provide feedback below.


Deposit Competition: The Fed does not have the legal authority to offer Federal Reserve accounts directly to consumers. In offering this it would be a massive expansion of the role of the Fed, creating undue risk for the financial system. In the report the Fed recognizes a CBDC would have an advantage over bank deposits. Because a CBDC would be a liability of the Federal Reserve, any funds held in CBDC would not reside on bank balance sheets or be available as a source of funds for lending back into the economy. The Fed notes that, “this substitution effect could reduce the aggregate amount of deposits in the banking system, which could in turn increase bank funding expenses, and reduce credit availability or raise credit costs for households and businesses.” As an industry we need to ensure the Fed understands the harm that will cause to our communities by limiting access to credit for customers as deposits leave our local banks.


Privacy Protection: The OBL believes a CBDC would create significant privacy concerns which would ultimately render most of the benefits of a CBDC moot. The Fed details the one of the biggest benefits of the a CBDC would be to bring the unbanked into the financial system. However, a general-purpose CBDC would generate data about users’ financial transactions, exposing individuals private financial details to the federal government like never before. The Fed report includes info from a 2019 FDIC of the unbanked population in which they cite privacy concerns as one of the top reasons for being unbanked. This means it is unlikely they will adopt a CBDC that exposes more personal financial information than anything existing in the marketplace.

 Comments on the discussion paper are due May 20, 2022. The Fed has a series of 22 questions related to the benefits, risks, design and policy considerations of CBDC. You can submit public comment here. You do not have to answer all 22 questions in your comment.