FameEX Hot Topics | Fed Governor Questions the Requirement for a U.S. Central Bank Digital Currency

Federal Reserve Governor Michelle Bowman has voiced skepticism regarding the necessity of a U.S. central bank digital currency (CBDC) in a recent address at Harvard Law School. Bowman's remarks underscore the importance of building a compelling case for the development of a CBDC and the need to address the identified issues more effectively than existing alternatives.

Advocates of a U.S. CBDC argue that it could address challenges within the payment system, promote financial inclusion, and offer the public swift access to central bank-backed digital money. However, Bowman has raised valid questions about whether a CBDC can outperform private sector innovations, particularly in the context of instant payment systems.

To illustrate progress in the existing financial infrastructure, Bowman cited the FedNow instant payment system. She contends that these ongoing efforts to enhance the current system may obviate the necessity of a CBDC. Moreover, she pointed out the "significant risks and tradeoffs" associated with CBDCs, with a major concern being their potential to disrupt the traditional banking system.

Bowman cautioned that an improperly designed and implemented CBDC could lead to "disintermediation," which could have adverse effects on both consumers and businesses. In her words, she stated, "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 has recommended further research on CBDCs and emphasized the central bank's need to closely monitor international developments in this field. However, she reiterated that a high threshold must be met before adopting a digital currency in the United States, given the substantial risks involved.

In summary, Governor Bowman's stance reflects a cautious approach toward the development of a U.S. CBDC. While acknowledging the potential benefits of digital currencies, she contends that a robust case has yet to be made for their implementation. Her concerns underscore the importance of conducting a comprehensive evaluation of the advantages and disadvantages of a CBDC within the context of the existing U.S. financial system. As a result, the path forward in the realm of central bank digital currencies remains a subject of ongoing debate and scrutiny.

Disclaimer: The information provided in this section is for informational purposes only, doesn't represent any investment advice or FameEX's official view.