At least three Federal Reserve governors have publicly stated that they do not see a compelling reason for the Fed to issue a central bank digital currency (CBDC). This stance contrasts with the global momentum toward digital currencies by many central banks.
Bowman: No Business Case for a Digital Dollar
Federal Reserve Governor Michelle Bowman said last week that she does not see much of a reason for the Fed to issue a U.S. CBDC given the safety and efficiency of the U.S. payment system. She stated: “I’m not really sure that I understand or see the business case for creating it.”
Bowman's remarks come as the Fed is putting together a report discussing the pros and cons of issuing a digital dollar. The report is expected to be released soon, providing a detailed analysis of the potential benefits and challenges.
Quarles: Unanswered Questions Make CBDC Unnecessary
Another skeptical governor, Randal Quarles, who is set to resign in December, expressed similar doubts at a Milken Institute conference on October 20. He said he does not understand the arguments in favor of issuing a central bank digital currency. Quarles opined: “Until somebody answers me the question why, I don’t understand why we would devote the enormous amount of resources and the technological risk and the significant disruption to the current operation of the financial system that would come from the central bank saying we are going to provide this digital currency.”
Quarles emphasized that policymakers need a clear and persuasive rationale before undertaking such a transformative initiative. He noted that the potential benefits of a CBDC remain unclear, while the risks—including technological challenges and disruption to existing financial systems—are significant.
Waller: CBDC Would Compete Directly with Commercial Banks
Federal Reserve Governor Christopher Waller also questioned the need for a digital dollar. During an October discussion hosted by the Official Monetary and Financial Institutions Forum (OMFIF), he explained that a CBDC would put the Fed in direct competition with commercial banks. Waller stated: “With a central bank digital currency, you’re asking a very direct question. Should the central bank be more involved in processing payments for households and firms in a way that allows them to circumvent the banking system? That is what a CBDC account is doing. So, should you compete with the banking system or not?”
In August, Waller had already expressed his skepticism: “I remain skeptical that a Federal Reserve CBDC would solve any major problem confronting the U.S. payment system.” He argued that the current payment system functions well and that introducing a CBDC could create unnecessary complexity. Waller also pointed out that if the Fed were to offer accounts directly to the public, it could profoundly affect bank deposits and credit creation.
Fed’s Ongoing Research and Global Context
Despite the skepticism from these three governors, the Fed overall continues its research into a digital dollar. Chair Jerome Powell had previously stated that the Fed would release a discussion paper by September of this year, though the document has not yet been published. The report is widely expected to evaluate the potential benefits and risks of a CBDC, possibly providing a framework for future policy decisions.
Globally, the People's Bank of China has already launched a pilot for its digital yuan, and the European Central Bank is actively advancing the digital euro project. The Fed's cautious approach reflects the unique characteristics of the U.S. financial system and regulators' wariness of disruptive innovation. While some argue that a digital dollar could enhance financial inclusion and payment efficiency, the Fed’s governors remain unconvinced that the benefits outweigh the costs and risks. The debate over a U.S. CBDC is far from settled.