Fed Governor Questions Need for US Central Bank Digital Currency

A top Federal Reserve official said Tuesday she has yet to be convinced there is a need for the U.S. central bank to develop a digital currency.

Fed Governor Remains Unconvinced on U.S. CBDC, Cites Existing Innovations and Risks

In a discourse at Harvard Law School, Fed Governor Michelle Bowman articulated that the case for a U.S. central bank digital currency, or CBDC, remains unconvincing, failing to distinctly showcase how it could address the identified issues more adeptly or efficiently than existing alternatives.

Proponents argue that CBDCs could address frictions in the payment system, promote financial inclusion, and provide the public with access to central bank money quickly. But Bowman questioned whether a CBDC would solve those issues better than private sector innovations like instant payments.

She cited the Fednow instant payment system as an example of existing infrastructure improvements. Bowman also warned that CBDCs pose “significant risks and tradeoffs” like disrupting the traditional banking system. She said if a digital currency is not properly designed, it could lead to “disintermediation” that harms consumers and businesses.

“I have yet to see a compelling argument that a U.S. CBDC could solve any of these problems more effectively or efficiently than alternatives, or with fewer downside risks for consumers and for the economy,” Bowman said.

Bowman noted that risks and tradeoffs include:

Potential unintended consequences for the U.S. banking system and considerable consumer privacy concerns. The U.S. banking system is a mature, well-functioning, and effective system that delivers important benefits to our economy.

The Fed governor called for more research on CBDCs and said the central bank should continue monitoring international developments. But she reiterated the high bar for adopting a digital currency in the U.S. given the risks.

“The potential benefits of a U.S. CBDC remain unclear,” Bowman said.

What do you think about Bowman’s speech about CBDCs? Share your thoughts and opinions about this subject in the comments section below.

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