Members of Congress from both parties raised concerns about the impact of a U.S. central bank digital currency on community banks after ICBA told lawmakers it opposes the digital dollar.

Congressional Concerns: During a House Financial Services Committee hearing on the benefits and risks of a CBDC, several committee members raised questions reflecting ICBA concerns about the community bank impact.

  • Rep. Brad Sherman (D-Calif.) raised concerns that a CBDC would reduce bank deposits, particularly among community banks, decreasing funding for home and business loans.

  • Rep. Andy Barr (R-Ky.) emphasized that even an intermediated CBDC system would result in deposits exiting community banks and the broader banking system.

  • Rep. Sean Casten (D-Ill.) questioned why a bank would have any incentive to take CBDC deposits if they are a liability of the Federal Reserve and there’s no way to lend against them.

  • Ranking Member Patrick McHenry (R-N.C.) questioned whether a CBDC provides any benefits that cannot be delivered by the private sector.

Arguments in Favor: Nevertheless, some policymakers indicated support for a U.S. CBDC.

  • Committee Chairwoman Maxine Waters (D-Calif.) said a U.S. digital dollar could provide the benefits promised by cryptocurrency without the risks posed by private issuers.

  • The sole witness—Federal Reserve Vice Chair Lael Brainard—similarly said the digitalization of the financial system and private-sector risks could necessitate a U.S. CBDC, touting the “intermediated” model the Fed is considering.

ICBA Statement: In its statement for the hearing, ICBA reiterated key points from its recent comment letter to the Fed that a a U.S. CBDC would:

  • Disintermediate community banks, obstructing their ability to take deposits and make loans.

  • Be costly for community banks.

  • Pose privacy and cybersecurity risks.

  • Not be an alternative to privately issued stablecoins.

Better Alternatives: ICBA’s statement also says the FedNow instant payment service is a more viable solution for payments modernization that complements increased Same Day ACH adoption and The Clearing House’s RTP service.

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