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Fed’s Bowman Doubts Benefits of US Central Bank Digital Currency

&copy Bloomberg. Michelle Bowman, governor of the US Federal Reserve

(Bloomberg) — Federal Reserve Governor Michelle Bowman says that the risks of creating a US digital dollar for use by everyday Americans might outweigh the benefits. 

“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,” Bowman said in a speech for an event hosted by Georgetown University. 

Bowman cited several possible risks of a retail-focused central bank digital currency, or CBDC, including possible impacts on consumer privacy and disruptions to traditional banking if it ends up draining deposits from that sector. These are concerns that have been mirrored by some lawmakers and bank lobbyists. 

The Fed would need to address those issues if it decides to move forward with such a CBDC, and it wouldn’t push forward without Congress’ approval, she said. 

Bowman also said that the Federal Reserve’s FedNow, which will be operational later this year, will allow US banks to offer their customers real-time payments services, addressing the desire for faster payments that has been cited as one of the benefits of a CBDC. 

Meanwhile, she said there could be some promise for a “wholesale” CBDC to settle certain financial market transactions, such as interbank transfers, and to process international payments — transactions that are currently slow and resource-intensive.

“There are potential use cases in the context of certain interbank transactions in wholesale markets, where some transactions are slow and heavily resource-intensive to clear and settle,” Bowman said. “Participants in the wholesale financial markets have been considering innovative ways to address these frictions with newer technologies such as distributed ledger technology in which shared information across counterparties could be leveraged to increase speed and reduce back-office costs to reconcile transactions before they settle.” 

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