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Federal Reserve governor dampens prospects for future CBDC

federal-reserve-governor-dampens-prospects-for-future-cbdc
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Federal Reserve governor dampens prospects for future CBDC

Federal Reserve Governor Michelle Bowman recently expressed skepticism about the unique benefits of a U.S. CBDC over other financial alternatives at a Harvard Law School roundtable discussion.

During a recent roundtable discussion at Harvard Law School, Federal Reserve Governor Michelle Bowman voiced her skepticism regarding the practicality of a U.S. central bank digital currency (CBDC). She expressed doubts over whether a CBDC could offer solutions to financial issues any more effectively than current alternatives, such as FedNow.

CBDCs have been touted by their advocates for their potential benefits, particularly in terms of financial inclusion and mitigating challenges within the payment system. Yet, Bowman remains unconvinced, arguing that these touted advantages may not be exclusive to CBDCs.

“These are all important issues. 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.

The Fed governor highlighted the recent launch of FedNow, a service designed to expedite transactions between financial institutions. Through FedNow, transactions can be settled in real time, considerably reducing wait times.

This system, alongside other private-sector counterparts, is aimed at providing consumers and small businesses with speedier and more streamlined payment processes. She believes such innovations could potentially address the very frictions CBDCs aim to solve.

While the Federal Reserve is exploring the feasibility of introducing a CBDC, its development is not imminent. Moreover, any decision to proceed would necessitate backing from Congress. This contemplation comes as an increasing number of countries — 130 at present, accounting for 98% of global GDP — are researching the possibility of their own CBDCs, as per the Atlantic Council.

On another note, Bowman raised concerns about stablecoins, asserting potential risks they could introduce to consumers and the U.S. banking infrastructure. She stated, “While I support responsible innovation that benefits consumers, I caution against solutions that could disrupt and disintermediate the banking system.”

This sentiment aligns with broader discussions, as legislation on stablecoin regulation is currently being considered, having already passed a House committee review. However, potential Senate debates could challenge its enactment.