NACS Favors a Central Bank Digital Currency System

However, the Federal Reserve should consider these six priorities when creating a CBDC.

May 27, 2022

Digital Currency

WASHINGTON—In January, the Federal Reserve released a white paper on the potential creation of a central bank digital currency. NACS has submitted comments on the paper, as the association believes “the public discussion of a potential central bank digital currency (CBDC) is an important one for the future of U.S. currency and the U.S. economy.”

NACS strongly supports the Federal Reserve in creating a CBDC; however, the paper states that the U.S. payment system is “generally effective and efficient,” and NACS believes that it is not.

“There are profound problems with credit and debit card payments in the United States,” wrote NACS. “These payments carry with them the most fraud and the highest interchange fees in the world. These outcomes are the result of serious competition law and policy problems with payment cards. While the Federal Reserve’s Regulation II has made substantial improvements with regard to the debit card market, some challenges remain.”

NACS referenced the Senate Judiciary Committee hearing on swipe fees, where NACS testified on behalf of the convenience store industry and sent the Federal Reserve a copy of its testimony.

“Competition problems in U.S. payments have the most negative effects for lower income Americans. The negative cost externalities associated with the dominance of two payment card networks hit the most vulnerable Americans hardest and work against financial inclusion. … These and other failures with current U.S. payments establish part of the reason why establishment of a CBDC should be a top priority,” wrote NACS.

NACS also believes that establishing a CBDC is also important to maintain the position of the U.S. dollar as the world’s reserve currency and its use in many contexts around the world.

“The United States needs to move in that direction to ensure that the dollar can continue to fulfill its role in the world economy. If there is no CBDC for the U.S. dollar, technological progress will ultimately mean that another currency takes the dollar’s place,” wrote NACS.

NACS listed six policy considerations the Federal Reserve should keep in mind when establishing a CBDC, including open financial offerings and innovations; no monopoly providers; no exchange fees; interoperability and standard setting; offline functionality and transaction settlement speed.

“A CBDC can help bring technology to bear in a way that will increase efficiency across the economy, open up new advances in financial services designed to handle the CBDC in ways that enhance Americans’ experiences on a global scale, and it can protect and extend the critical role that U.S. currency already plays in the world. Moving forward expeditiously should be seen as an imperative for the nation,” said NACS.

The Federal Reserve cautioned that the release of the paper was not “intended to signal that the Federal Reserve will make any imminent decisions” about a CBDC but said a “wave” of technological advances including digital wallets and mobile payments have led central banks around the world to consider the benefits and risks of issuing digital currency.

“A CBDC could potentially serve as a new foundation for the payment system,” the paper said. It could be used “to make basic purchases of goods and services or pay bills,” could “support faster and cheaper payments” and “could lower transaction costs.”