Michelle Bowman has emerged as the latest Federal Reserve Governor to express skepticism regarding a US Central Bank Digital Currency (CBDC), noting that the benefits of a digital dollar remain ambiguous while the potential risks could be significant.
The Federal Reserve has spent several years examining the advantages and disadvantages of a digital dollar, publishing a discussion paper on the subject in January 2022. At a recent event at Harvard Law School, Bowman emphasized that the US already has a “safe and efficient” payments system that is evolving with “responsible innovations,” including the recently launched FedNow service.
She stated, “Future innovations may further enhance these services to more effectively tackle payment system frictions and promote financial inclusion. It’s quite possible that other proposed solutions might address many, if not all, of the issues a CBDC aims to solve, potentially in a more effective and efficient manner.”
Bowman expressed concerns that a retail CBDC could inadvertently impact the US banking system and raise significant consumer privacy issues. She cautioned, “If not properly designed, a CBDC could disrupt the banking system and lead to disintermediation, potentially harming consumers and businesses while posing broader financial stability risks.”
Despite her reservations, Bowman acknowledged the importance of continued research into CBDCs, given the “interconnected and global nature of the financial system.” Fed Chair Jerome Powell has remained neutral regarding the potential for a digital dollar, whereas Governor Christopher Waller has voiced strong skepticism about the necessity of a CBDC, labeling it as “a solution in search of a problem.” Furthermore, Fed supervision chief Randal Quarles has gone even further, suggesting that CBDCs could turn out to be an embarrassing trend, likening them to the parachute pants popularized by rapper MC Hammer in the 1980s.