SIFMA Recommends Policymakers Focus on "Wholesale" Central Bank Digital Currencies

In response to a Federal Reserve Board report on the issuance of a U.S. central bank digital currency ("CBDC") (see previous coverage), SIFMA recommended that policymakers focus on "wholesale" CBDCs "which would be used for institutional financial transactions" rather than a publicly available retail CBDC.

SIFMA stated that "policymakers need to be clear on why a CBDC is needed and what problems it would address[.]" SIFMA President Kenneth E. Bentsen, Jr. said that he opposed the adoption of a retail U.S. CBDC because there have not been enough studies conducted to adequately understand its costs and benefits. SIFMA said that research would need to be done on how capital markets would be impacted by the introduction of a U.S. CBDC because "73 percent of all U.S. economic activity is funded through capital markets activities."

SIFMA stated that policymakers should focus on "wholesale" CBDCs ("wCBDC") "which would be used for institutional financial transactions" rather than a publicly available retail CBDC ("rCBDC"). SIFMA compared the benefits of a wCBDC to an rCBDC and found that, among other things, a wCBDC is (i) less disruptive to the financial system, (ii) less politically fraught and (iii) "preserv[es] the U.S. dollar's status as a reserve currency and as the predominant currency for international financial transaction[.]"

SIFMA recommended (i) evaluating the privacy concerns of a wCBDC, (ii) coordinating between financial institutions and government actors "whose supervisory functions and regulations could be impacted by a wCBDC," (iii) treating the legal status of any U.S. CBDC the same as that of a legacy fiat currency and ensuring fungibility with one another and (iv) providing access to a potential wCBDC only to those institutions that "are subject to a framework of regulation and supervision that is comparable to that currently in place for institutions with access to Federal Reserve master accounts and services."