utah.bank 10 By Rob Blackwell, Chief Content Officer at Intrafi When it comes to the creation of a U.S. central bank digital currency, many bankers take comfort in the conventional wisdom that any such move — if it happens at all — will take years to come to fruition. With many technical hurdles to overcome, not to mention the massive challenge in passing legislation to authorize a CBDC, they believe time is on their side. Indeed, a recent IntraFi survey found concerns raised by banking trade groups about a possible CBDC had not yet drifted down to most institutions. Only 13% of the more than 400 executives polled rated the creation of a CBDC as a subject of concern. In contrast, more than 40% of them were more worried by the Consumer Financial Protection Bureau’s crackdown on so-called “junk” fees or its pending rule to collect more data on small business loans. This complacency is dangerous. While I understand concerns about both these CFPB initiatives, their importance pales in comparison to what the Federal Reserve Board is contemplating now. If bankers are not careful, they may find themselves on the losing end as they watch the Fed create an alternative to federally insured deposits. This would inevitably drain funding from community banks, impacting the availability of credit nationwide, and likely fuel further consolidation in the industry. There may be other harmful impacts as well. The European Central Bank has estimated that if it implements its project to create a European CBDC, it will drain 12% to 20% of deposits out of the private-sector system, according to Randal Quarles, the former Fed vice chairman for banking supervision. Quarles warned that if that happened in the U.S., policymakers would inevitably seek to redirect some of those funds back to banks, and that would come with political strings attached. “That’s going to have to be reintermediated somehow … unless we want a contraction in the economy,” he said on an episode of IntraFi’s Banking with Interest podcast. That “will come with strings. It will be directed to where the politicians would like it. It will be withheld from where the politicians don’t want it … All of it is unavoidable if you have a central bank digital currency that is even partially disintermediating the private sector banking system.” BANKS ARE WORRIED ABOUT A CBDC. NOT NEARLY WORRIED ENOUGH.
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