CUNA appreciates the Federal Reserve’s look into a central bank digital currencies (CBDCs) but believes a focus on the issues the currency intends to solve and a more refined outline of its design is necessary. CUNA submitted comments Friday on the Federal Reserve’s request for comment (RFC) on its “Money and Payments: The U.S. Dollar in the Age of Digital Transformation” discussion paper.

The paper defines a CBDC as “a digital liability of a central bank that is widely available to the general public” analogous to a digital form of paper money.

“We recognize this RFC is intended as an initial step in this process; we envision the conversation to be an iterative and extended process--one in which we are enthusiastic about participating. We have concerns, however, that under several scenarios the creation of a CBDC could significantly worsen the provision of financial services.

We want to continue having this conversation and to work collaboratively to identify ways credit unions can address the problems described in the RFC, whether through existing tools or through newly created financial instruments,” it adds.

CUNA notes that the creation of a CBDC deserves “serious and exacting consideration,” and its implementation should be authorized by Congress.

“While there are no doubt opportunities for improvement, we believe most, if not all, 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.”

CUNA notes several scenarios that could significantly worsen the operating environment for credit unions. For example, the creation of a retail CBDC could result in significant deposit substitution that would negatively affect lending and investments, reduce credit supply, increase the cost of credit, and cause an economic slowdown.