Randal Quarles and the CBDC Debate

In a recent episode of the “Banking With Interest” podcast, Randal Quarles, former vice-chair for supervision at the Federal Reserve, stepped into the ring to discuss central bank digital currencies (CBDCs). Known for his skepticism towards this new form of currency, he doesn’t believe the U.S. will be hosting a digital dollar party anytime soon.

The Marginal Benefits of CBDCs

Quarles didn’t mince words when evaluating the advantages of CBDCs, arguing that their benefits are “extremely marginal, if they exist at all.” He highlighted that for the average consumer, the hurdles to using a CBDC might actually widen the gap in financial inclusion rather than bridge it. “You’re going to need an account at the bank, the way you need to use money now, and in addition […] a cellphone and wireless access, and all that is making inclusion harder,” Quarles explained. He took a rather strong stance when he labeled the idea of using a CBDC to sidestep banks as “pathological.”

The Political Landscape and CBDC Legislation

Quarles pointed out the mixed opinions about CBDCs within the Fed, suggesting that not everyone is on board with the digital dollar idea. He expressed his concerns about policymakers who might feel pressured to mimic other countries’ digital currency systems, warning that a bill to authorize a CBDC could face a tough uphill battle in Congress. “People are going to push back, and they’re not just going to take the idea at face value,” he said. Despite a generally conservative and cautious atmosphere, he observed a shift among some politicians, noting that they seem more worried about falling behind China.

Stablecoins: The Real MVP of Digital Transactions

In contrast to his lukewarm reception of CBDCs, Quarles showed enthusiasm for stablecoins and their potential in international transactions. He voiced confidence in the ability of U.S. private sector innovations to outperform those of state-run alternatives, like China’s e-yuan. Quarles mused, “Why are you going to invest a whole lot of effort into developing a […] stablecoin payment system if the Fed is just going to bigfoot you out of existence?” It seems stablecoins hold a preferable spot in his financial heart, at least more than unproven CBDC plans.

Advice for Successors: Stick to Your Guns

As for advice to his potential successor, Michael Barr, formerly of Ripple, Quarles offered a simple mantra: “Make your decisions as technocratic as possible.” He’s clearly preparing Barr for the eventual clashes between political aspirations and the reality of financial policy. After all, navigating this landscape is like trying to juggle while riding a unicycle – tricky at best!