The American Bankers Association (ABA) urged House leaders to support a bill that would prevent the Federal Reserve from creating a CBDC for individuals and using it as a monetary policy tool.

Congressman Tom Emmer (R-Minn.)** introduced the CBDC Anti-Surveillance State Act (H.R. 5403) in September 2023. The bill, which has 165 cosponsors, is expected to be voted on this week.

ABA's Stance on CBDC

In a letter to Speaker Mike Johnson and Minority Leader Hakeem Jeffries, the ABA expressed strong opposition to the concept of a CBDC. The association emphasized that a CBDC, a digital form of central bank money widely available to the general public, would present unacceptable risks and costs to the financial system in the United States.

"The dollar is already digital today, and it is unclear how issuing a CBDC would improve financial inclusion or achieve other laudable goals," the ABA stated in its letter.

The ABA's letter also warned that a CBDC would disrupt the financial system in several ways. It argued that a CBDC could fundamentally alter the relationship between citizens and the Federal Reserve, weaken the role of banks, worsen economic downturns, and make it harder for the Fed to manage the economy effectively.

Current Status of CBDC in the U.S.

While the U.S. has yet to launch a CBDC, the government has shown interest in digital currency. One notable example is the New York Fed's 12-week pilot program testing a simulated digital dollar. This initiative highlights the ongoing efforts to explore the potential of digital currencies.

Fed officials, including Chair Jerome Powell and Governor Michelle Bowman, might hesitate about a digital dollar. However, this has kept the Fed from actively researching its potential benefits and risks.

Concerns Over FedNow Service

The recent launch of the FedNow Service for instant payments in October has raised concerns among experts. They worry that this service could be a stepping stone toward developing a future CBDC.

The ABA fears that a CBDC would siphon money away from banks and into the Fed, crippling banks' ability to lend and hindering economic growth across the country.

In simple terms, the ABA sees a CBDC as a powerful competitor that could steal deposits from banks, making it harder for them to provide loans that fuel local economies.