Since my last examination found that the majority of commenters were concerned about the Federal Reserve’s (Fed’s) proposal for a central bank digital currency (CBDC), the Fed has released another 535 public comment letters. Despite a slightly more positive outlook than initially found, a clear majority of the commenters still view a CBDC negatively. Specifically, more than 66 percent of the 2,052 commenters were concerned or outright opposed to the idea of a CBDC in the United States (Figure 1). The most common concerns were over financial privacy, financial oppression, and the risk of disintermediating the banking system.

And much like before, a little housekeeping with the dataset might offer a more accurate breakdown. After eliminating 56 comments that were entirely blank and likely submitted in error as well as 27 comments that explicitly sought out government contracts, the number of commenters against the idea of a CBDC rises from 66 percent to 71 percent—a change that closely resembles the 4 percentage point increase that occurred with this adjustment in the first examination.

Businesses Have Entered the Conversation

There were also other insights that only became fully apparent with the last rounds of comments. Namely, major businesses working in finance, technology, and regulatory compliance seem to be the most interested in a CBDC. As illustrated in Figure 3, these institutional commenters made up 34 percent of the second to last batch and 86 percent of the last batch of comments. Although previous comment batches had positive comments 9.57 percent of the time on average, these last batches rated CBDCs positively 28 and 33 percent of the time, respectively.

Why might businesses be interested in a CBDC? There are a few reasons. First, some commenters appeared to be explicitly interested in securing a government contract on the looming project. Whether it was for advisory services or offering their cutting-edge technology, these commenters were not shy about letting the Fed know that they wanted in on the action. Second, and not too distant from the first group, some of the commenters likely already have active contracts with the Fed and were thus doing their part to protect (or even strengthen) their investment. For example, at least 8 businesses that commented are also featured on the Fed’s new “service provider showcase.” Third, with the CBDC conversation veering away from “if it will happen” and towards “when it will happen,” it’s possible some commenters only wanted to secure their seat at the table for when the Fed launches a CBDC.

Still, not all businesses were on board with the plan. Many banks and credit unions questioned the Fed’s motivations in their letters. In fact, they routinely pointed out that there are no unique benefits evident that justify the launch of a CBDC. For instance, the Credit Union National Association (CUNA) wrote,

While there are no doubt opportunities for improvement, we believe most, if not all, [of these opportunities] can be addressed by innovations in the current financial services framework and through continued public-private partnerships, without the introduction of a novel digital currency that could destabilize the system.

In fact, the Bank Policy Institute (BPI) made an important addition to this point in its own comment letter when it wrote,

Furthermore, many of the potential benefits cited by proponents of a CBDC are uncertain, and, moreover, many are mutually exclusive and thus could not be realized simultaneously.

And the American Bankers Association (ABA) added on to this point in its comment letter when it wrote,

Contrary to popular belief, a U.S. CBDC is not necessary to “digitize the dollar,” as the dollar is largely digital today. However, the issuance of a CBDC would fundamentally rewire our banking and financial system by changing the relationship between citizens and the Federal Reserve.

CUNA, BPI, the ABA, and others that echoed these points are all correct. Put simply, a CBDC is a solution in search of a problem. As I explained in my own comment letter, none of the purported benefits offered by the Fed are novel and few are likely to hold true in practice.

CBDC: A Solution in Search of a Problem

For instance, the Fed cited a need to improve the payments system as one of the reasons to launch a CBDC. Although such improvements are indeed long overdue, the Fed itself plans to launch a new program (FedNow) to solve this very issue in less than six months. More so, there already exists a program for faster payments in the private sector (the RTP Network), one that FedNow has likely hindered. Considering a U.S. CBDC is likely 5 to 10 years away, it’s hard to imagine how both the RTP Network and FedNow would not have already solved the issue before a CBDC could arrive.

Similarly, both the rising adoption of mobile banking and the Bank On initiative have helped to increase financial inclusion. Each year, the number of unbanked and underbanked Americans continues to decrease. And best of all, the accessibility of cryptocurrencies, prepaid cards, fintech services, and check cashing all continue to reduce the burden of being unbanked in the United States. Again, it seems the solutions that are currently present are better suited for today’s problems than the prospect of a CBDC sometime in the future.

Finally, it’s also unclear how a CBDC will improve the dollar’s status as the world’s reserve currency. To explain, let’s briefly consider some of the CBDCs currently in use around the world. China has now had a CBDC available for some time, but we have yet to see the world flock to it. As James Dorn has explained, the reason is quite clear: “The real intent of introducing a digital yuan is more likely to be to increase state control of the payments system and to closely monitor transactions and even personal behavior.” Despite whatever purported advantages it may offer, people recognize that their rights are on uncertain ground if they use China’s CBDC. Nigeria, on the other hand, is ranked nearly thirty steps above China in the Cato Institute’s Human Freedom Index, but it is unlikely that people will flock to this CBDC because of Nigeria’s volatile inflation rate. With both China and Nigeria off the table, the Bahamas may offer an option that’s just right. The Bahamas is ranked 85 steps above Nigeria in the Human Freedom Index and the value of their CBDC is actually pegged to the value of the U.S. dollar. Yet, as of now, there are not enough people that use the Bahamian CBDC for it to be a “go-to currency” on the international stage. So here we can see three unique problems and a CBDC has done nothing to solve any of them.

Next Steps

As I said in my first examination, Congress should take note that CBDCs are no longer the niche issue that they once were just a few years ago. The Fed should be required to directly address, among other things, the public’s concerns regarding what a CBDC means for financial privacy and what unique benefit a CBDC will provide. As noted by the Republican members of the House Committee for Financial Services, led by Representative Patrick McHenry (R‑NC), “It is critical that we fully understand the potential impact a [CBDC] will have on Americans’ civil liberties and privacy rights before any legislative action is considered.” As it stands, the Fed has a long road ahead of it if it is to truly address these risks.