US central bank digital currency commenters divided on benefits, unified in confusion

In January, the United States Federal Reserve Board of Governors released a discussion paper on a potential U.S. central bank digital currency (CBDC) titled “Money and Payments: The U.S. Dollar in the Age of Digital Transformation.” The comment period for the paper ended May 20, with the Fed receiving over 2,000 pages of comments from individuals alongside responses from leading stakeholders.

Cointelegraph read a selection of shareholder responses to the Fed paper, and it quickly became apparent that there are plenty of confidently stated opinions but little agreement among them. The main points of commonality are in the places they are all perplexed.

The Fed wants to know

Appropriately for its purpose, the Fed paper provides a broad overview of central bank digital currencies and CBDC-adjacent topics without great depth. The discussion begins with the results of previous analyses that determined a U.S. CBDC would have the best results if it is privacy-protected, intermediated, widely transferable and identity-verified. It goes on to consider the potential uses, benefits and risks of a U.S. CBDC. Stablecoins and cryptocurrency are mentioned briefly, and 22 questions are offered for discussion.

The paper also looks at current developments in electronic money. On the wholesale side, the FedNow Service is expected to enable real-time, around-the-clock interbank payments beginning in 2023. Meanwhile, the private Bank On initiative and other programs strive to increase financial inclusion by promoting low-cost banking services to those who are unbanked and underserved.

Shadings of neutrality

One thing in short supply in the stakeholder comments Cointelegraph examined is neutrality. The response from the Institute of International Finance is an exception in this regard. 

The IIF is a global financial industry association with more than 450 members from over 70 countries. Its membership includes commercial and investment banks, asset managers, insurance companies, sovereign wealth funds, hedge funds, central banks and development banks.

The IIF answered all of the 22 questions suggested by the Fed while remaining agnostic on the merits of creating a U.S. CBDC.

“A decision like this merits serious thought, so the IIF wanted to be quite constructive in its submission to support the Fed’s ability to evaluate the pros and cons,” Jessica Renier, the IIF’s managing director of digital finance, told Cointelegraph.

The IIF response is not unopinionated. It lists 12 policy considerations the authors feel need to be addressed before a CBDC can be launched, including environmental issues, which went unmentioned by the Fed. It offers practical suggestions on validators and other technical issues and takes pains to emphasize the need for input from the private sector for a retail CBDC.

“The business model needs to work,” said Renier. “If the risks outweigh the incentives, you may only attract intermediaries that depend on selling user data, like tech firms. That’s not good for consumers.” She added:

“If the Fed proceeds, it needs to work closely with the banks to understand the real impact on their ability to lend, and to test the actual operation of a potential CBDC.”

The Securities Industry and Financial Markets Association represents securities broker-dealers, investment banks and asset managers, advocating for effective, resilient capital markets.

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Its lengthy, detailed response does not take a position on the desirability of introducing a CBDC but concentrates on settlement and payments between financial institutions, noting that “U.S. capital markets fund 73 percent of all economic activity, in terms of equity and debt financing of nonfinancial corporations.”

Programmability and interoperability are key concerns for SIFMA, with it stating that “Many of the benefits […] often associated with wCBDCs [wholesale CBDCs] are not dependent…