US credit unions back anti-CBDC bill citing absence of clear ‘regulatory parameters’

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The National Association of Federally-Insured Credit Unions (NAFCU) is against the Federal Reserve’s plan to experiment with a central bank digital currency (CBDC) over perceived risks.

In a June 7 letter, NAFCU declared support for the Digital Dollar Pilot Prevention Act introduced in the U.S. House of Representatives by Rep. Alex Mooney (R-WV). Per the letter, NAFCU argued that the Federal Reserve should halt all studies into CBDCs until clear regulatory guidelines have been established.

Regulatory guidelines for a digital dollar can only be achieved in consultation with Congress and stakeholders, including banks and credit unions, according to the union.

“NAFCU is concerned that the costly tradeoffs are very likely to exceed hypothesized benefits of a CBDC which are, to this point, difficult to identify. Additionally, the administration of a CBDC will distract from the Federal Reserve’s dual mandate of achieving both stable prices and maximum sustainable employment,” the letter read.

Although the Federal Reserve does not regulate credit unions, the prospects of a retail CBDC have stoked fears of upending the balance in the payments industry. Commercial financial institutions have shared similar sentiments over fears of a bank run, given the ease of converting deposits to CBDCs.

Critics argue that the launch of a CBDC will see the Federal Reserve operate in the space as both a regulator and a competitor for deposits. Other concerns against the experimentation of a digital dollar include privacy and surveillance issues which critics say could be the first step into transitioning into an Orwellian state.

“CBDCs would threaten the liberties of law-abiding Americans and are being used by authoritarian countries right now to crack down on dissent. That’s why closing this pilot program loophole is so important—to prevent the Federal Reserve from bypassing the will of Congress,” Rep. Mooney said.

In its defense, the Federal Reserve pointed to the dwindling use of cash and the need to foster healthy competition in payments as potential benefits for experimenting with CBDCS.

Only 16% of Americans support CBDC

New research by Cato Institute suggests a grim future for CBDCs marked by an overwhelming distrust with only 16% of respondents indicating support for launching a digital dollar, while nearly 80% expressed doubts over their feasibility.

According to the report, nearly 50% revealed a lack of knowledge of the internal workings of a CBDC, with younger Americans more receptive to the idea of a digital dollar. The strongest opposition to CBDCs comes from state legislative houses as a growing number take the preemptive step to ban CBDCs in their jurisdictions.

To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.

Watch: Blockchain provides perfect foundation for CBDC