US Federal Reserve Governor Challenges Necessity of a Digital Currency Issued by the US Central Bank

Fed Governor Remains Skeptical about U.S. CBDC

Federal Reserve Governor Michelle Bowman expressed her skepticism about the need for a U.S. central bank digital currency (CBDC) during a discourse at Harvard Law School. She argued that the case for a CBDC has not been convincing enough, as it fails to demonstrate how it could address existing issues better than current alternatives.

Existing Innovations and Risks

While proponents believe that CBDCs can resolve payment system frictions and promote financial inclusion, Bowman questioned whether private sector innovations like instant payments could achieve the same outcomes. She cited the Fednow instant payment system as an example of an existing infrastructure improvement.

Bowman also warned of the significant risks and tradeoffs associated with CBDCs, including potential disruption to the traditional banking system. If not properly designed, a digital currency could lead to “disintermediation” that harms consumers and businesses.

The Need for Further Research

Bowman called for more research on CBDCs and emphasized the importance of monitoring international developments in this area. However, she reiterated that there is a high bar for adopting a digital currency in the U.S., given the associated risks.

Hot Take: Unclear Benefits of a U.S. CBDC

According to Federal Reserve Governor Michelle Bowman, the benefits of a U.S. CBDC are still unclear. While proponents argue that it could address various issues in the payment system, promote financial inclusion, and provide quick access to central bank money, Bowman remains unconvinced that a CBDC would be more effective or efficient than existing alternatives. She believes that private sector innovations, such as instant payments, may already offer suitable solutions. Additionally, Bowman highlighted the risks and tradeoffs associated with CBDCs, including potential disruption to the banking system. Therefore, she suggests further research and careful consideration before adopting a digital currency in the U.S.