The American Bankers Association (ABA) urged House leaders on Monday to support a bill that would prevent the Federal Reserve from creating a central bank digital currency (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. With backing from 165 cosponsors, the bill is expected to be voted on this week.

“ABA believes strongly that a CBDC, defined as a digital form of central bank money that is widely available to the general public, is unnecessary in the United States and would present unacceptable risks and costs to the financial system,” the association stated in a letter to Speaker Mike Johnson and Minority Leader Hakeem Jeffries.

“The dollar is already digital today, and it is unclear how issuing a CBDC would improve financial inclusion or achieve other laudable goals,” the letter added.

Fed Studying CBDC Despite Reservations from Top Officials

The ABA’s letter also warned that a CBDC could disrupt the current financial system. It argued that a CBDC might fundamentally alter the relationship between citizens and the Federal Reserve, weaken the role of banks, worsen economic downturns, and complicate the Fed’s ability to manage the economy effectively.

While the US has not launched a CBDC, the government has shown interest in digital currency initiatives, such as the New York Fed’s 12-week pilot program testing a simulated digital dollar.

Despite hesitations from top officials like Fed Chair Jerome Powell and Governor Michelle Bowman, the Federal Reserve continues to research the potential of a digital dollar.

ABA Warns of Crippling Impact on Banks

The ABA also expressed concern about the Fed’s FedNow Service for instant payments, launched in October, which some experts fear could be a stepping stone toward a future CBDC.

The association argued that a CBDC would harm banks by drawing money away from them and into the Fed, thereby reducing banks’ capacity to lend and stunting economic growth. In essence, the ABA sees a CBDC as a powerful competitor that could siphon deposits from banks, impairing their ability to provide loans that support local economies.

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