ABA Analysis: Fed Paper Highlights Potential CBDC Effects on Bank Deposits

The Federal Reserve’s recently released paper on central bank digital currencies confirmed that a CBDC would compete with banks for deposits, according to a members-only staff analysis published by ABA.

While the paper claimed not to advance a particular outcome, the Fed demonstrated a clear preference for a “privacy-protected, intermediated, widely available and identity-verified” CBDC, the ABA analysis highlighted. Importantly, the Fed signaled that it does not intend to move forward with a CBDC without clear support from the executive branch and from Congress, ideally in the form of a specific authorizing law.” The paper also clarified that the Fed does not currently have the authority to offer direct Fed accounts to individuals.

ABA has previously weighed in on the risks associated with issuing a CBDC, warning that the issuance of a CBDC could compete with bank deposits and limit banks’ ability to power economic growth. ABA is currently reviewing the paper and will provide feedback to the Fed. To provide feedback for ABA’s comments or join the association’s digital asset working group, contact Rob Morgan.