Federal Reserve Governor Praises Wholesale CBDC Potential, But Retail Adoption Remains Elusive

"Former Fed Governor Bowman Skeptical of CBDC's Ability to Enhance Payment System and Financial Inclusion in the US"

Federal Reserve Governor Lael Brainard has expressed her support for the development of a central bank digital currency (CBDC) in the United States. Speaking at a virtual conference on Thursday, Brainard highlighted the potential benefits of a CBDC, including its ability to improve the payment system and promote financial inclusion.

However, Brainard acknowledged that there are also risks associated with the introduction of a CBDC, such as the potential for financial instability and the need to protect user privacy. She emphasized the importance of conducting thorough research and engaging with stakeholders to ensure that any CBDC implementation is both safe and effective.

Brainard’s comments come as other central banks around the world are also exploring the possibility of issuing their own digital currencies. China has already launched a pilot program for its digital yuan, while the European Central Bank is currently conducting a public consultation on the potential introduction of a digital euro.

Despite Brainard’s support for a CBDC, other officials within the Federal Reserve have expressed skepticism. In a speech last month, Federal Reserve Bank of Boston President Eric Rosengren argued that the current payment system is already efficient and that a CBDC could pose significant risks to financial stability.

Federal Reserve Governor Michelle Bowman has also expressed doubt about the need for a CBDC to improve the payment system or its ability to enhance financial inclusion in the United States. A CBDC would have to beat the performance of the new FedNow system to earn a place on the market, and the 4.5% of Americans who do not have bank accounts are unlikely to want to use a CBDC. Bowman added that the Federal Reserve is currently focused on improving the existing payment infrastructure and expanding access to financial services.

Despite these differing opinions, the Federal Reserve has announced that it will be conducting research into the potential benefits and risks of a CBDC. The central bank has also stated that it will be engaging with stakeholders to gather input and feedback on the issue.

As the use of cash continues to decline and digital payments become increasingly popular, the introduction of a CBDC could have significant implications for the future of the financial system. It remains to be seen whether the Federal Reserve will ultimately decide to issue its own digital currency, but the ongoing debate highlights the need for further research and discussion on the topic.

Martin Reid

Martin Reid

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