Federal Reserve Bank Governor Michelle Bowman says the use case for a central bank digital currency (CBDC) in the US remains unclear.
In a new roundtable address at Harvard, Bowman says there may be alternatives to CBDCs that solve all the same problems a digital dollar claims to address.
“It is entirely possible that other proposed solutions could address many or all of the issues that a CBDC would address, but in a more effective and efficient manner.
Furthermore, the potential benefits of a US CBDC remain unclear, and the introduction of a US CBDC could pose significant risks and tradeoffs to the financial system. These risks and tradeoffs include potential unintended consequences for the U.S. banking system and significant consumer privacy concerns.”
According to Bowman, stablecoins, or dollar-pegged crypto assets, can be viable alternatives to CBDCs, but she says they also pose risks to the U.S. financial system because they are less regulated and have been unstable in the past. Bowman cautions that CBDCs and stablecoins should both be approached with caution.
“Another alternative to traditional forms of money and payment, or to a CBDC, are stablecoins. This form of payment emerged primarily to support crypto asset trading, but is increasingly proposed as an alternative to traditional payments and as a store of value.
Stablecoins claim to have one-to-one convertibility with the dollar, but in practice they are less secure, less stable and less regulated than traditional forms of money. Digital assets used as alternative forms of money and payment, including stablecoins, can pose risks to consumers and the U.S. banking system.
Therefore, it is important to understand the risks and trade-offs associated with digital assets and new schemes used for banking and payments. While I support responsible innovation that benefits consumers, I caution against solutions that could disrupt and disintermediate the banking system, potentially harming consumers and contributing to broader risks to financial stability.”
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