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US Fed’s CBDC Report Comments: The Good, Bad, and Ugly

Rich Turrin | May 29, 2022

Good Bad Ugly responses to US digital dollar report - US Fed's CBDC Report Comments: The Good, Bad, and UglyThe Fed’s report on CBDC was published at the end of January and the comment period officially closed on May 20, 2022 meaning that we can now look at what representatives from banking, stablecoins, and crypto had to say about the report!  For the record I am no fan of the Fed’s long-awaited report on a U.S. central bank digital currency (CBDC) and proclaimed that it read like a high school book report. I wrote about the report in great detail: here.

The Ugly: American Bankers Association

It’s no surprise that the American Bankers Association (ABA) was going to come after the digital dollar with knives drawn. Download ABA response: Here

“ABA’s analysis suggests that deposits accounting for 71% of bank funding would be at risk of moving to the Federal Reserve. This could increase the average cost of funding for banks by approximately 170 basis points. Such an increase in average funding costs would be unsustainable and would undermine the economics of the banking business model."

See:  Federal documents warn of sweeping implications if ‘digital loonie’ adopted

Bank of Canada scenario analysis of a CBDC on bank deposits show that even under the most severe scenario where 40% of deposits migrate to CBDC bank funding is still healthy. Full report: Here

The ABA’s 71% figure which they pass off as “analysis” assumes all bank deposits in the United States will convert to CBDC!  The reality is very different:  So using the ABA’s figures the actual impact will be far less than placing “71% of funding at risk.” Using the ABA’s own figure of $16.9 trillion (rounded to 17) the impact will be:

  • $446 billion = 2.7% of $17 trillion in bank deposits
  • $1 trillion = 5.8% of $17 trillion in bank deposits

The Bad: Stablecoin Circle

Download Circle’s response to the Fed: Here

See:  Alt-M Analysis: Where the U.S. Feds CBDC Proposal Goes Wrong

  • Many of the potential benefits of a CBDC detailed in the discussion paper are already being met by existing blockchain-based payment system innovations.
  • Bringing stablecoins like Circle’s USD Coin (“USDC”) under common-sense regulatory guidelines would ensure proper supervision over an asset that is already achieving many of the Federal Reserve’s objectives in a potential CBDC.
  • If a digital asset behaves like a currency or payment system, it should be afforded the benefits of digital legal tender status or conformity with well-laid money transmission, e-money, financial markets infrastructure and prudential rules.

The Good!: Crypto, Stellar

Stellar’s response was the most upbeat of them all: Here, saying:

  • Can a CBDC promote financial inclusion? We think so.
  • A well-designed CBDC could have a positive effect on inclusion and the economy by expanding access to and usage of affordable financial services.

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