U.S. Federal Reserve Vice Chair for Supervision Randal K. Quarles made disparaging remarks about a potential U.S. central bank digital currency (CBDC) on Monday, pointing to the risk involved with its rollout during a speech at the 113th annual Utah Bankers Association Convention in Sun Valley, Idaho.

A CBDC could have a significant impact on private banking Quarles said in the speech.

“First, a Federal Reserve CBDC could create considerable challenges for the structure of our banking system, which currently relies on deposits to support the credit needs of households and businesses,” Quarles said. “An arrangement where the Federal Reserve replaces commercial banks as the dominant provider of money to the general public could constrict the availability of credit, fundamentally alter the economy, and expose the public to a host of unanticipated, and undesirable, consequences.”

Specifically citing the potential for cyberattacks and illicit activity related to the digital currency, Quarles said: “The architecture of a Federal Reserve CBDC would need to be extremely resistant to such threats — and would need to remain resistant as bad actors employ ever-more sophisticated methods and tactics.” He added: “Designing appropriate defenses for CBDC could be particularly difficult because, compared to the Federal Reserve’s existing payment systems, there could be far more entry points to a CBDC network — depending on design choices, anyone in the world could potentially access the network.”

The massive infrastructure and vast resources required to create a CBDC are also of concern to Quarles, who said, “We will need to consider whether the potential use cases for a CBDC justify such costs and expansion of the Federal Reserve’s responsibilities into unfamiliar activities — together with the risk of politicization of the Fed’s mandate — that would come with such an expansion.”

Quarles’ speech also included moments in which he alluded to a U.S. CBDC as simply America’s “enthusiasm for novelty” and compared it to the mistakes of “the 1980s when millions of Americans suddenly started wearing parachute pants,” while noting that the consequences for a CBDC could be “more serious.”

As public interest in a U.S. CBDC grows, hearings were held in the Senate on June 9, and in the House on June 15, to explore the risks and rewards of a possible Federal Reserve-issued digital currency.

The Fed previously announced that a discussion paper regarding a potential CBDC would be available sometime this summer. However, Quarles concluded his Monday speech by saying, “I think the bar to establishing a U.S. CBDC is a high one.”

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