Bowman said in a speech that a central bank digital currency (CBDC) could interfere with the users’ privacy and harm the banking system while providing various benefits that aren’t available otherwise for banked and unbanked consumers similarly.
“We must ensure that consumer data privacy protections embedded in today’s payment systems continue and are extended into future systems,” she said in prepared remarks at Georgetown University.
Further, Bowman also noted “the risk that a CBDC would provide not only a window into, but potentially an impediment to, the freedom Americans enjoy in choosing how money and resources are used and invested.”
For the past few years, Fed officials have been considering whether to join an alliance of other central banks to implement their own type of cryptocurrency. A study released in 2022 mentioned the various pros and cons but didn’t take a stance.
Bowman also addressed one of the most common arguments in her remarks, namely the opportunities that a CBDC could provide for those without access to traditional banking activities, as well as the importance of catching up to the Fed’s global counterparts that have already administered digital currencies. The People’s Bank of China, for example, has its own product in place.
However, the speech mostly noted refutation. For instance, she said fewer than 5% of U.S. households are without a checking or savings account, and most of that group is voluntarily unbanked.
“Approximately one-third cited a lack of trust in banks as the reason for not having a bank account,” Bowman said.
“I think it is unlikely that this group would find the government somehow more trustworthy than highly regulated banks,” she added.
Further, she also noted the possibility of a CBDC that would serve as a foundation that banks could use to construct their own commodities. Also, she anticipated the possible use for “certain financial market transactions and processing international payments.”
However, she believes that an interest-bearing digital dollar issued by the Fed would be damaging to banks, reducing their ability to lend.
She also rejected the idea that a virtual currency is required to support the dollar, which is valued because of “the size of the U.S. economy, its deep and liquid financial markets, the strength of U.S. institutions, and its commitment to the rule of law,” none of which would be strengthened by a central bank digital currency.
“When it comes to some of the broader design and policy issues, particularly those around consumer privacy and impacts on the banking system, it is difficult to imagine a world where the tradeoffs between benefits and unintended consequences could justify a direct access to CBDC for uses beyond interbank and wholesale transactions,” she said.
Moreover, like other Fed officials, Bowman claims that the FedNow payments system, which is set to go live soon, will overcome many of the issues raised by central bank proponents of digital currencies. However, the system will go live in July.
Former Fed Governor Lael Brainard is currently director of the National Economic Council, and she is perhaps the CBDC’s most vocal Fed supporter.
- Published By Team Genuine Reporter