US Federal Reserve Governor Michelle Bowman spoke at Georgetown University on April 18 to “offer perspective” on central bank digital currency (CBDC). According to Bowman, the Federal Reserve plays an important role in the CBDC debate. Her examination of the problems a CBDC could solve and the design and policy issues that come with it showed little enthusiasm.
Bowman expressed doubts about the need for a CBDC to improve the payment system or its ability to boost financial inclusion in the United States. A CBDC would have to outperform the new FedNow system to gain a place in the market, and the 4.5% of Americans without bank accounts are unlikely to want to use a CBDC. Bowman added:
“Unbanked households are also less likely to own mobile phones or have internet access, which would be a barrier to CBDC adoption.”
Bowman also did not take kindly to CBDCs as a policy application. In his opinion, the programmability of CBDCs “stands in stark contrast to the flexibility and freedom of physical currency or bank deposits,” which could be misused. Besides:
“There is also the risk that this type of control could lead to the politicization of the payment system and, in its essence, how money is used. A CBDC that would allow this type of control […] it could also threaten the independence of the Federal Reserve.”
Speech by Governor Bowman on the considerations for a central bank digital currency: https://t.co/WLK1vp7hlb
Watch live: https://t.co/nurl0Ods5G
—Federal Reserve (@federalreserve) April 18, 2023
Fear of the unknown colored several of Bowman’s conclusions. Cross-border payments would require the creation of a regulatory framework, the stablecoin could offer an alternative, depending on future legislation, and user privacy could be at risk from CBDCs, she said, without much further ado. Newly announced US stablecoin legislation would give the Federal Reserve control over non-bank stablecoin issuers.
Repeating an argument made by his colleague Christopher Waller, Bowman rejected claims that a CBDC would strengthen the place of the US dollar in the international economy, arguing that the role of the dollar internationally is due to factors such as the size of the US economy. , the strength of its institutions and other things that a CBDC would not affect.
“We should ask ourselves ‘what current frictions exist or may arise in the payment system that only a CBDC can resolve, or that a CBDC can resolve in the form more efficient?” said Bowman. He concluded that there was little reason to recommend a retail CBDC:
“It is hard to imagine a world in which unintended benefits and consequences could justify a direct access CBDC for uses other than interbank and wholesale transactions.”
Nonetheless, he acknowledged that wholesale CBDC holds promise for some high-volume transactions and international payment processing.
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