U.S. Federal Reserve President Michelle Bowman gave a speech at Georgetown University on April 18 to “offer a perspective” on central bank digital currencies. Bowman said the Fed is playing an important role in the conversation about CBDCs. Her research on the problems a CBDC might solve and the design and policy issues it brings shows little enthusiasm.
Bowman expressed skepticism about the need for a CBDC to improve the payment system or its ability to increase financial inclusion in the United States. A CBDC would have to outperform the new FedNow system to take hold in the market, and the 4.5% of Americans who are unbanked are unlikely to want to use a CBDC. Bowman added: “Unbanked households are also less likely to own mobile phones or access the internet, which would pose a barrier to CBDC adoption.”
Bowman is also pessimistic about the implementation of CBDCs as policy. She sees the programmability of CBDCs in stark contrast to the “flexibility and freedom embedded in physical currency or bank deposits” that could be abused. also:
“There is also a risk that this type of control could lead to a politicization of the payments system and, fundamentally, how money is used. A CBDC that allows this type of control could also threaten the independence of the Federal Reserve.” Fear of the unknown influenced several of Bowman's conclusions. Cross-border payments require a regulatory framework, stablecoins may offer an alternative depending on future legislation, and user privacy may be threatened by CBDCs, she said, but without much further consideration. Newly announced U.S. stablecoin legislation will give the Federal Reserve control over non-bank stablecoin issuers. Bowman repeated arguments made by her colleague Christopher Waller, dismissing the notion that a CBDC would strengthen the dollar's role in the international economy, arguing that the dollar's international role is due to the size of the U.S. economy, the factors such as strength. Institutions and other things that CBDC will not affect.
“We should be asking, ‘What frictions exist or could arise in the payment system today that only a CBDC can solve, or can a CBDC solve most effectively?’” Bowman said. She concludes that there is nothing to recommend a retail CBDC: “It is difficult to imagine a world in which the trade-off of benefits and unintended consequences could justify direct access to a CBDC for uses other than interbank and wholesale transactions.”
She acknowledged, however, that wholesale CBDCs have some promise, for some large transactions and international payment processing.
