Central Bank Digital Currencies: A Retail Ban, a Wholesale Question

The strongest good-faith objection is the financial-inclusion case, and it deserves to be stated at full strength rather than caricatured. Roughly 4.3 percent of U.S. households, about 5.9 million households, had no bank account as of the FDIC's most recent complete survey, a historic low but still a substantial population. A critic could argue that a direct Federal Reserve account, unlike a checking account, carries no minimum balance, no overdraft fee, and no bank underwriting decision about who counts as an acceptable customer, and that refusing to build one trades away the one payment instrument designed specifically to reach people the existing banking system already excludes. Banning the retail CBDC, on this view, does not protect the unbanked from surveillance; it leaves them exactly where they already are, paying check-cashing fees and prepaid-card costs instead.

The objection is serious, but it rests on an assumption this issue's own research does not support: that an intermediated, privacy-protected CBDC of the kind the Federal Reserve's own 2022 design paper describes would reach the unbanked at all. The Fed's own instant-payment system, FedNow, is the closest available test of that assumption, and the answer it gives is discouraging for the inclusion case specifically. FedNow has no direct link to individual consumers by design; it routes exclusively through participating banks and credit unions, the same kind of intermediary a "privacy-protected, intermediated" CBDC, the Fed's own stated design principle, would also have to route through. An unbanked household gains nothing from an intermediated instant-payment rail it still cannot access without a bank relationship. The version of a retail CBDC that would solve the inclusion problem, a direct Fed-to-consumer account with no bank in between, is precisely the version this issue's Principled Foundation identifies as the one that concentrates surveillance risk. The inclusion case and the privacy risk turn out to be the same design feature described from two directions, not two separable choices where a well-designed CBDC could keep one and drop the other.

That leaves the inclusion goal itself, which this issue does not abandon: it redirects that goal to instruments built for the purpose without the Fed-account risk, low-cost "Bank On"-certified account standards, postal-banking pilots, and interoperable reloadable-card rules, none of which require creating a new class of Federal Reserve liability held by individuals. The position holds: a retail CBDC is not the inclusion tool it is sometimes advertised as, so this issue's ban does not trade inclusion for privacy, and the cost that remains is smaller than the objection assumes.

Unbanked and underbanked households, the roughly 5.9 million households the FDIC's most recent complete survey counted as unbanked, bear the foreclosure of a hypothetical fee-free federal account. That cost looks acute at first glance but is smaller in practice than it appears: this issue's own Steelman finds that the specific design which would have delivered the inclusion benefit is also the specific design that concentrates surveillance risk, so the realistic alternative was never a safe, inclusive retail CBDC, it was a retail CBDC carrying the same risk this issue rejects on other grounds. The cost that remains, the gap between a Fed account and the low-cost-account and postal-banking alternatives Proposal 5 funds instead, is the specific, bounded cost this issue accepts: smaller than the inclusion case implies, and addressed by a named alternative instead of left as an acknowledged gap.

U.S. exporters, importers, and banks that clear dollar-denominated trade finance bear a second, more diffuse cost if wholesale settlement innovation lags while alternative rails normalize elsewhere. Project mBridge's China-Gulf settlement volume is not yet a majority of global trade finance, so this cost is early-stage and its ultimate size is not yet knowable, but it compounds the longer U.S. wholesale participation stays politically entangled with a retail debate it has nothing to do with.

Taxpayers and Federal Reserve staff bear the direct, modest cost of continued wholesale-settlement research and the reporting Proposal 3 requires. That is the acceptable cost in this issue's own ranking: a known, bounded research expenditure against an unbounded, harder-to-reverse cost of ceding settlement-infrastructure ground to a system built to route around the dollar.