FedAccounts: the CBDC Alternative?

Back in 2018, an article was published calling for the Fed to go into retail banking. This FedAccounts idea was promoted as a ready alternative to a CBDC and was inserted into a number of bills introduced into Congress, including the Stable Act.

Basically, FedAccounts calls for the Fed to allow anyone to hold accounts with the Fed, not just select banks. These interest-bearing accounts would give everyone access to all the Fed services currently limited to banks, including RTGS, and render the FDIC obsolete as everyone would hold money directly from the central bank. Retail services would be handled through post offices with specially trained postal clerks.

There are two big problems with this idea. One is that it will cause massive disintermediation of the banking industry, which the FedAccount authors play down. I see no possibility of this happening in reality. Two, this idea will fail because it's been tried repeatedly before and was always shot down when it started to threaten the banking industry.

The first institution set up on this kind of direct model was US Postal Savings System. (A Postal Savings Certificate is pictured.) As the name suggests, the Post Office managed savings accounts for small savers. It was started in 1911 but never became very successful because it was never allowed to pay market rates on deposits. However, the Postal Savings System hung on until the 1960s when inflation started to take off.

More short lived was the United States Savings System started by the US Treasury just after World War I. The USSS lasted about two years and consisted of a number of thrift securities that could be bought by individuals, but there was no account held with the Treasury. Yet, the banks did not like the competition, despite it paying below-market returns, and the stock market boom of the 1920s killed the USSS off. This model was tried again through the myRA program begun in 2014. It lasted four years.

While the Fed, with the assistance of the US Treasury, is certainly capable of becoming a retail banker, I just don't see this happening.