Fed Governor Bowman doubts the necessity for a digital US greenback

Federal Reserve Governor Michelle Bowman delivers her first public remarks as a federal politician at an American Bankers Association conference in San Diego, California February 11, 2019.

Ann Sapphire | Reuters

Federal Reserve Governor Michelle Bowman expressed skepticism about the possibility of a digital US dollar, noting on Tuesday the multiple risks such a scheme could entail.

A central bank digital currency (CBDC) could invade user privacy and harm the banking system, while offering few benefits otherwise unavailable to consumers, Bowman said in a speech.

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“We need to ensure that the privacy of consumer data embedded in today’s payment systems is continued and extended to future systems,” she said in prepared remarks at Georgetown University.

Bowman further noted “the risk that a CBDC would not only provide a window into the freedom Americans enjoy when it comes to how money and resources are used and invested, but potentially be a barrier to it.”

In recent years, Fed officials have been exploring whether to join a handful of other central banks in implementing their own brand of cryptocurrency. A study published in 2022 went into detail about the various advantages and disadvantages, but took no position.

In her remarks, Bowman addressed most of the common arguments — specifically the opportunities a CBDC could offer for those unable to access traditional banking activities and the importance of catching up with the Fed’s global counterparts, which are already adopting digital currencies have. The People’s Bank of China, for example, has its own product in use.

In the speech, however, mainly counter-arguments were mentioned. For example, she said that less than 5% of US households do not have a checking or savings account, and most of that group are unbanked voluntarily.

“About a third cited a lack of trust in banks as a reason for not having a bank account,” Bowman said. “I think it’s unlikely that this group would find the government any more trustworthy than heavily regulated banks.”

She pointed to the possibility that a CBDC that would serve as a foundation could be used by banks to build their own products. She also mentioned the possible use for “certain financial market transactions and the processing of international payments”.

However, she said an interest-bearing Fed digital dollar could pose harmful competition for banks and limit their ability to lend.

She also dismissed the notion that a digital currency is needed to support the dollar, which she believes is “prone because of the size of the US economy, its deep and liquid financial markets, the strength of US institutions, and its commitment to domination.” “of the Act,” neither of which would be backed by a central bank digital currency.

“When it comes to some of the broader design and policy issues, particularly consumer privacy and the impact on the banking system, it is difficult to imagine a world where the trade-offs between benefits and unintended consequences would make CBDC directly accessible to consumers uses beyond that could justify interbank and wholesale transactions,” she said.

Like other Fed officials, Bowman said the forthcoming implementation of the FedNow payments system will also address many of the needs cited by central bank digital currency advocates. The system will be introduced in July.

Perhaps the biggest Fed supporter of the CBDC has now left the central bank: former governor Lael Brainard is now director of the National Economic Council.

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