Central Bank Digital Currency: Michelle Bowman’s Cautious Approach

A Cautious Perspective on CBDC

During her address at Georgetown University, Federal Reserve Board Governor Michelle Bowman shared her insights on the current state and future potential of central bank digital currencies (CBDCs). While she touched on various aspects of CBDCs, her overall tone reflected skepticism about their value in improving the existing payment system.

The FedNow Challenge

Bowman indicated that a CBDC would need to significantly outperform the recently launched FedNow service to be viable in the marketplace. She pointed out that a modest 4.5% of Americans live without bank accounts, and the idea of a CBDC appealing to this demographic seemed far-fetched. The struggle for access to technology was a significant concern:

• Many unbanked households lack mobile phones.
• Internet access is not a given for everyone.

The Programmability Dilemma

One of the more startling points Bowman made revolved around the programmability feature of a CBDC. She argued that the programmable nature could lead to an infringement on the freedom that physical currency currently allows. With so much potential for misuse, she expressed that control over money usage could politicize the payments system:

“There is also a risk that this type of control could lead to the politicization of the payments system.”

A Lack of Enthusiasm for Retail CBDCs

Bowman wasn’t shy about her doubts. She urged the audience to consider the existing issues in the payment system and whether only a CBDC could address these effectively. “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 stated. Retail CBDC didn’t seem to be the ticket to a better financial future.

Bright Spots in Wholesale CBDC

Nevertheless, there was a glimmer of hope for wholesale CBDCs, especially for substantial transactions and international payments. While recognizing the challenges, Bowman acknowledged that these could be areas where CBDCs might still shine.

Conclusion: Proceed with Caution

In light of her thoughtful approach, it’s clear that Bowman doesn’t subscribe to the notion that CBDCs are a panacea for the American payment system. Instead, her focus on careful examination of the potential pitfalls embodies a much-needed caution as discussions around CBDCs continue to unfold. In Michelle’s world, the line of questioning isn’t just about *if* we adopt CBDCs, but rather *why* and *when*—and for many of us, that’s a more pragmatic approach.