U.S. Treasury Wants A CBDC - Why Credit Unions Oppose It

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Not too long ago, The U.S. Treasury surprised us all. They released an ' International Framework for Engagement on Digital Assets.' Once everyone skimmed through the document, one word shone like the rising sun: CBDC. 


Yet, there's a somewhat significant problem. While the Treasury argues a CBDC brings new opportunities to the system, credit unions oppose it. They believe creating a CBDC is a waste of resources. Will there be a pitched battle over an American CBDC?


Treasury's Framework on Digital Assets


The day the U.S. Treasury Department surprised us was July 7. Everyone was talking about interest rate hikes. No one was really expecting what the Treasury was about to release. Late that Thursday afternoon, the Treasury released the fact sheet of a new framework. 


Meet the 'Framework for International Engagement on Digital Assets,' presented to the White House. After all, the Administration's Executive Order on Digital Assets required it. 


However, one thing in the fact sheet stood out — the word CBDC popped up 14 times.


In the fact sheet, the Treasury suggests that the development of a CBDC could involve both public and private participants. On the one hand, leading technology development companies could provide all their expertise. On the other hand, these companies could have the input of the entire G7 in the development of CBDCs.


But, many questions and variables arise when discussing a CBDC. Fed Chairman Jay Powell said a couple of years ago that central banks are the ones to develop CBDCs. He claimed private entities don't participate in the money supply. Hence, they shouldn't be the ones to design it.


Yet, someone else raised their voice higher: credit unions. 


Why Are Credit Unions Against a CBDC?


The National Association of Federally-Insured Credit Unions (NAFCU) opposes the CBDC idea. And they made their concerns known in a public letter to the Commerce Department. According to Andrew Morris, NAFCU's senior research advisor, there are better alternatives. He also asserts that the costs would outweigh the benefits. 


In the letter, NAFCU highlighted that there are less disruptive alternative payment initiatives. They also stated that credit unions already help reach underserved populations. 


Finally, NAFCU offers some suggestions for increasing U.S. global competitiveness. Their primary recommendation is to support responsible innovation within the credit union industry. They also proposed applying consumer screening laws to companies that offer digital assets.


However, the group proposes to support credit union participation. This calls into question their credibility, as they appear to be self-serving. 


G7, Cross-country payments, and the future of CBDCs according to the Treasury


But the Treasury's Office of Financial Research got to work on this right away. Just five days after the framework's release, they published a paper on the stability of CBDCs


According to the paper, regulators cannot see the real-time inflows and outflows of money. A CBDC would give them real-time fund flow information. Likewise, they claim a CBDC would make the whole bank system more robust. 


They are also leveraging several elements discussed in the framework. One of the most important elements involves the Financial Stability Board. This group would be in charge of studying the performance of the digital asset. They would also identify any elements of stability risk related to CBDC. 


Finally, FSB would also be responsible for promoting a complete understanding of the technology.


Treasury would also work with the Financial Action Task Force. In this case, the main FATF's task would be forcing its standards for digital assets globally. 


CBDC: The Challenge


Yet, the Treasury must break down many barriers for the development of a CBDC to materialize. 


On the one hand, you have the crypto community. Crypto heads don't like the idea of a CBDC. They think it is the pure meddling of a government entity in a decentralized space. If so, much of the crypto decentralization would disappear once exchanged for a CBDC. 


On the other hand, the Republican Party is skeptical about the issue. They claim that many existing payment systems are far superior to CBDCs. Many of them have recommended studying them much more before making a decision.


U.S. regulatory intentions, plus the sudden decline of LUNA, Celsius, etc., could favor the creation of a CBDC. There is fear in the market regarding the current stablecoins. Even if Tether or Circle claim to have reserves, no one can say for sure that these will stay afloat. 


One more stablecoin debacle and a CBDC is almost inevitable. Yet, it remains unknown how long it will take or how well received it will be.


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