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Wall Street bankers argue digital dollar could destroy banks

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May 24, 2022

Wall Street bankers are concerned that a Fed-backed digital dollar could severely damage banks, according to a letter lobbyists sent to the U.S. central bank. The lobbyists sent the letter in response to a call from the Fed for comments on a potential central bank digital currency, according to a report by Yahoo! Finance.

The American Bankers Association argue the digital dollar would lead to "deposits accounting for 71% of bank funding are at risk of moving to the Federal Reserve." This in turn would increase the cost of funding in banking to an "unsustainable" level.

"Current research overwhelmingly undermines the purported benefits of a CBDC and instead indicates that a CBDC would seriously disrupt the financial system, significantly harming consumers and businesses," Greg Baer of the Bank Policy Institute, wrote in a letter.

The BPI letter also argued the digital currency wouldn't actually lead to more financial inclusion and that "we are unaware of any substantiated use case for CBDC that would benefit low- and moderate-income people."

It also states it would only support a CBDC if "research points to benefits for households, businesses, and the economy overall that exceed the downside risks, and indicates that CBDC is superior to alternative method."