When it comes to central bank digital currencies (CBDCs), count as another skeptic Federal Reserve Board Member Christopher Waller, who Thursday expressed his doubts it would “solve any major problem confronting the U.S. payment system.”
In remarks via webcast to the American Enterprise Institute, Waller said that the first order of business in discussing the future of a Fed-issued CBDC is to ask whether there is compelling need for the Fed to create a digital currency. “I am highly skeptical,” he said.
“In all the recent exuberance about CBDCs, advocates point to many potential benefits of a Federal Reserve digital currency, but they often fail to ask a simple question: What problem would a CBDC solve,” Waller asked. “Alternatively, what market failure or inefficiency demands this specific intervention? After careful consideration, I am not convinced as of yet that a CBDC would solve any existing problem that is not being addressed more promptly and efficiently by other initiatives.”
The newest member of the Fed Board (he was confirmed by the Senate in December) told the group that government interventions into the economy should come only to address significant market failures. “The competition of a Fed CBDC could disintermediate commercial banks and threaten a division of labor in the financial system that works well,” Waller said. “And, as cybersecurity concerns mount, a CBDC could become a new target for those threats.”
In May, Fed Board Chair Jerome H. (“Jay”) Powell said the agency was exploring the use of CBDCs. He said then that the central bank would issue a “discussion paper” on the subject this summer that would look into the implications of digital payments, including possibly a U.S.-issued currency. He also said the key focus for the Fed is whether or how a CBDC could improve on what he called the existing “already safe, effective, dynamic, and efficient U.S. domestic payments system” in serving households and businesses.
Since Powell’s announcement in May, Fed Board members have expressed differing perspectives on CBDCs. Shortly after the announcement, Board Member Lael Brainard said that, by introducing safe central bank money that is accessible to households and businesses in digital payments systems, a CBDC would reduce counterparty risk and the associated consumer protection and financial stability risks.
Board Vice Chair for Supervision Randal Quarles, taking an opposite view, in June equated interest in CBDCs to the popularity of “parachute pants” in the 1980s (although Quarles did not disclose if he ever owned, or wore, a pair). “Even if other central banks issue successful CBDCs, we cannot assume that the Federal Reserve should issue a CBDC,” Quarles said. “The process that Chair (Jerome H. [“Jay”]) Powell recently announced is a genuinely open process without a foregone conclusion, although obviously I think the bar to establishing a U.S. CBDC is a high one.”
Last month, Powell said that before settling on a CBDC, broad support among the public – and in Congress – is a must. “Ideally, that would take the form of authorizing legislation, as opposed to a very careful reading of ambiguous law to support this,” Powell said.
Waller’s views came down firmly on the side of unconvinced about the future of a Fed CBDC. He said he expects his concerns about threats and risks posed by Fed-issued CBDC will be addressed in the discussion paper promised by Powell, “and I intend to expand upon them as the debate over digital currencies moves forward.”