The American Bankers Association (ABA) disagrees with the US central bank’s plans to launch its own digital currency. The ABA represents the interests of several U.S. commercial banks.
What is a central bank digital currency?
Such a central bank digital currency is called a CBDC called. CBDC stands for Central Bank Digital Currency. Some central banks are already developing their own coin, while others are at least talking about it. The US central bank is still in the consultation phase, as is the European central bank for that matter.
Without bitcoin and blockchain technology there would never be plans for a CBDC, the big difference with bitcoin however is that central control is present. In fact, a country’s monetary policy is set by a central bank.
It is not a requirement that a CBDC run on a blockchain. Many central banks do talk about it, and blockchain provides the technological architecture to keep track of the transactions of all businesses and citizens.
READ ALSO: Federal Reserve Seems To No Have A Concrete Plan for CBDC
Benefits are not clear
“The purported benefits of a U.S. central bank digital currency are uncertain and unlikely to be realized, while the costs are real and acute.” wrote the ABA to the U.S. Department of Commerce.
No more comments possible
The Commerce Department had issued a request for public comment in May in response to President Biden’s executive order in March calling on federal agencies to report on digital assets. Comments could be submitted until Tuesday, July 5.
“Issuing a CBDC would fundamentally rewire our banking and financial system by changing the relationship between citizens and the Federal Reserve,” the ABA writes.
“There are also important trade-offs to be made between various design choices. These trade-offs are likely to undermine many of the key goals of a CBDC and make it essentially impossible for a CBDC to fulfill all of the various goals for which it is currently being discussed.”
What is the American Bankers Association?
The ABA is no small player and is considered the largest financial trade group in the United States. The association was founded in 1875 and they lobby for banks of all sizes, including community banks, regional and money center banks, savings associations, mutual savings banks and trust companies.
Members representing collectively represent more than 95 percent of the financial industry and collectively have $13.5 trillion in assets under management.
All of these members see a CBDC as a threat to their revenue models, so the ABA’s criticism should not be seen as an altruistic action, but as a life preserver. Compare it to how central banks agitate against bitcoin.
No more privacy for users
A common criticism is that a Federal Reserve CBDC will ensure that consumers and commercial banks no longer have a finger in the pie, this critics say is a threat to these banks and to the financial privacy of individuals.
An example of this is how China wants to use its CBDC: users are given a limited time to spend this digital currency in certain sectors of society. If citizens do not comply, the money disappears from their accounts.
Cryptocurrency against CBDC
It is not only the banks that are against a CBDC, representatives from the crypto industry also spoke out. These include the Blockchain Association, the Chamber for Digital Commerce and the Association for Digital Asset Markets.
Incidentally, the Chamber for Digital Commerce, say the digital version of our KVK, was still fairly mild: “The U.S. CBDC should be designed to complement other forms of digital money that have already been developed.”
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