Wall Street lobbies are bashing the idea of a digital dollar from the Fed and say the move would drain money from the US banking system

Dollar printing — Concerns have grown that the dollar's dominance could be declining.
scanrail/Getty Images

Wall Street trade groups are pushing back against the possibility of a digital dollar from the Federal Reserve.
The American Bankers Association said a central bank digital currency would "rewire our banking and financial system."
Even if CBDC accounts were capped at $5,000 per user, they would drain in $720 billion in deposits, the ABA estimated.

Wall Street banks are pushing back against a potential digital currency from the Federal Reserve, arguing that it would take away capital from the banking system in a time economic uncertainty.

Fed officials have been studying a digital dollar but have yet to propose creating one. Still, the banking industry isn't waiting to weigh in.

The American Bankers Association published a letter Friday warning that a central bank digital currency would "rewire our banking and financial system." And even if CBDC accounts were capped at $5,000 per user, they would drain in $720 billion in deposits, or 71% of bank funding, the ABA estimated.

"The purported benefits of a CBDC are uncertain and unlikely to be realized, while the costs are real and acute. Based on this analysis, we do not see a compelling case for a CBDC in the United States today," the letter said.

Digital currency debates have only heightened in recent months as the cryptocurrency market cap has shrunk from a high of $3 trillion in November to $1.2 trillion now. The recent stablecoin debacle has further raised concerns among regulators and the Biden administration about digital tokens.

The ABA added that the dollar is already largely digital in the US and globally, through payment systems like Venmo and CashApp. A CBDC could lead to massive shifts of capital away from traditional banking systems, it said.

"Losing this critical funding source would undermine the economics of the banking business model, severely restricting credit availability," the ABA said.

In a separate letter, also on Friday, the Bank Policy Institute echoed the ABA's sentiments, saying that a digital dollar would jeopardize banking institutions and customers while also restricting credit availability and raising loan costs.

Read the original article on Business Insider