Fed’s Bowman says central bank should be engaged in CBDC discussion; sees ‘some promise’ for wholesale CBDCs

Whatever may be the outcome, it’s important for the Federal Reserve to be engaged in ongoing discussions around central bank digital currencies (CBDCs), the Fed Board’s community bank representative said Tuesday in Washington.

“[A]s the evolution of money and payments continues, it is important for the Federal Reserve to continue looking ahead to anticipate potential changes to money and payments well into the future,” Fed Gov. Michelle Bowman said before a Georgetown University business school conference. “With this in mind, our consideration of other potential innovations to money and payments, including a potential U.S. CBDC, must be viewed through the lens of whether and how the payment system would be improved beyond what instant payment services will achieve. We should ask ‘what current frictions exist or may emerge in the payment system that only a CBDC can solve, or that a CBDC can solve most efficiently?’”

Bowman said that from her perspective, there could be “some promise” for wholesale CBDCs in the future for settlement of certain financial market transactions and processing international payments. She noted doubts about direct access for consumers, however.

“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 CBDC for uses beyond interbank and wholesale transactions,” she said.

Apart from ongoing efforts related to CBDC, Bowman said, the Fed remains committed to implementing FedNow, the Fed’s instant payments service, “which is expected to support the broader adoption of instant payments in the U.S., meaningfully evolving and upgrading the U.S. payments infrastructure for consumers and businesses.”

While monitoring developments in other jurisdictions, she said the Fed “will work closely with international counterparts on payments innovation, CBDC, and other related topics.”

Considerations for a Central Bank Digital Currency,” April 18, 2023, speech by Fed Gov. Michelle W. Bowman at the Georgetown University McDonough School of Business Psaros Center for Financial Markets and Policy, Washington, D.C.