Federal Reserve Governor voices concerns on CBDCs. Details inside…

• Bowman expressed doubts regarding the need for CBDCs and advocated for an appropriate regulatory framework for financial innovation.
• Her concerns about CBDCs also revolved around the potential risks they pose to the financial system.

Federal Reserve Board governor Michelle Bowman reiterated her skepticism about central bank digital currencies (CBDCs). She also stated her concerns about their potential impact on the financial system during a speech at Harvard Law School on 17 October.

In her address, Bowman also addressed stablecoins, unified ledger technology, and distributed ledger technology. Thus, emphasizing the need for proper regulation and questioning the necessity of these innovations. Her stance expressed doubts regarding the need for CBDCs. Furthermore, she advocated for an appropriate regulatory framework for financial innovation.

Bowman acknowledged that there are ongoing debates about the potential disintermediation of banks by CBDCs and their impact on the existing financial system. However, she emphasized that innovations like CBDCs should address issues within the payment system, promote financial inclusion, and provide access to safe central bank money.

While recognizing the need to improve the financial infrastructure, Bowman argued that there are alternative solutions to CBDCs. She cited the FedNow service introduced in July as a prime example of innovation within the existing financial system. The Federal Reserve has previously stated that it would not issue a U.S. dollar CBDC without a congressional mandate.

Michelle Bowman highlights concerns about CBDCs and the need for a regulatory framework

Bowman’s concerns about CBDCs also revolved around the potential risks they pose to the financial system.

Additionally, Bowman emphasized her belief in the U.S. intermediated banking model. She saw it as a way to protect consumer financial activities from unnecessary government overreach. While she didn’t elaborate on how banks prevent overreach, her statement suggested that she sees the existing financial system as a safeguard against excessive government intervention.

In the context of stablecoins, Bowman reiterated her call for a regulatory framework for financial innovation. She based this on the principle of regulating the same risks. The Federal Reserve governor highlighted the low level of regulation surrounding stablecoins as a primary argument against their widespread use. Her concerns echo broader discussions within the regulatory community about the need for robust oversight of digital assets and stablecoins in particular.

Bowman also addressed issues within the payment system. She suggested that some frictions are a result of existing policies, laws, and consumer preferences. She pointed to factors like Anti-Money Laundering regulations and the prevention of overreach as contributing to perceived limitations in the payment system. Her remarks indicated that some challenges may be rooted in policy and regulatory frameworks rather than technological constraints.

In closing, Bowman expressed her support for research, including research on CBDCs. She emphasized that the Federal Reserve remains open to exploring various options for improving the payments landscape.