The U.S. payment system is a critically important part of our financial system that positively contributes to the stability and resiliency of our economy. The ability to quickly send and receive secure payments cost-effectively is a basic precondition for a robust market economy in the modern era. The past few years have seen a significant rise in interest in digital payment technologies and that interest has, quite naturally, been followed by significant private market innovation that has expanded the scope of the digital payments frontier. Recently, the Federal Reserve issued a discussion paper that explores the pros and cons of a potential U.S. central bank digital currency (CBDC). A CBDC would be a digital liability of the Federal Reserve that would be widely available to the public and would provide individuals with additional means of making digital payments.
The Forum has responded to the Fed’s paper, addressing each of the broad issues and specific questions posed. Here’s what we had to say.
First and foremost, Forum members are committed to helping ensure that the United States has a world-leading payment system that allows households and businesses to carry out financial transactions quickly, securely and cost-effectively. Towards this end, Forum members currently offer several payment-related services, such as electronic bill pay and funds transfer services, which offer benefits similar to those envisioned with a CBDC. The Clearing House, which is owned by banks, operates a real-time payment system accessible to financial institutions that hold 75 percent of the nation’s demand deposit accounts (e.g., checking accounts). Private market innovation in the payment space has been robust and continues to bring new payment options to consumers and businesses. As a consequence, the vast majority of money that households and businesses use today for transactions is digital. As of March 2022, over 90 percent of M2 (a broad aggregate measure of money) is in digital form. Anyone who has paid for a cup of coffee or transferred money to a relative with their cell phone can attest to the increasingly common use of digital payments in our economy.

As demand for digital payments grows and efforts to further modernize payments continue, the Federal Reserve, other relevant agencies, and the private sector should work together to develop public-private partnerships that can undertake robust research and development about new technologies and infrastructures, including a CBDC. Given the importance of the payment network to our economy, it is crucial that the public and private sector work collaboratively to thoroughly assess the benefits of various digital payment technologies.
But beyond questions of need and commercial viability in the case of a CBDC, there are a variety of unique risks that need to be squarely addressed. A CBDC raises potential economic and financial stability risks that could arise in the banking sector and related funding markets. Questions and risks also arise around digital currency interoperability and effective implementation of monetary policy.All of these risks are significant and not well understood.

Beyond these issues, a CBDC also raises important questions about the appropriate legal and regulatory framework that would allow it to operate alongside the private payment system, with clear rules of the road that establish a level playing field. These legal and regulatory questions should be placed on equal footing with the commercial and stability risks that have been identified.

Innovation is the lifeblood of economic growth. Innovation and progress in the payment system is no different, and the largest banks are constantly working towards a world-leading payment system that offers speed, efficiency, as well as security and stability. The Fed has officially started the CBDC conversation with an open and collaborative approach.Given the novelty of a CBDC, its manifold risks, and its overlap with existing and future private market payment technologies, we believe that it is critical for the Federal Reserve and other parts of the U.S. government to work closely with the private sector to fully understand and document the potential costs and benefits of CBDC to the U.S. economy. The Forum and its members look forward to continued and productive engagement on these important issues