FRB Governor Bowman Frames the Debate on Adoption of a CBDC

Federal Reserve Board ("FRB") Governor Michelle W. Bowman posed threshold questions to policymakers on issues associated with the potential adoption of a central bank digital currency ("CBDC").

In her remarks before the Georgetown University McDonough School of Business, Ms. Bowman said that policymakers should consider two "threshold questions" before making a decision to adopt a CBDC: (i) what the problem is that needs to be solved and whether a CBDC is a potential solution; and (ii) "What features and considerations -- including unintended consequences" a policymaker should consider in designing and adopting a CBDC.

Ms. Bowman encouraged policymakers to examine, among other things, the following:

• Payment System Efficiency. Ms. Bowman said that policymakers should consider whether a CBDC would make a payment system more efficient by increasing the speed of payments and/or reducing "friction" in either domestic or cross-border payments. She suggested that improving the speed of payments can be achieved without a CBDC by using services such as, for example, the FRB’s FedNow Service.
• Financial Inclusion. Ms. Bowman asked policymakers to consider ways to promote financial literacy as a means of improving financial inclusion, given that a CBDC, if adopted, would be unlikely to increase inclusion because of its highly regulated and technological nature.
• Cross-Border Transactions. Ms. Bowman asked policymakers to consider how CBDCs might (i) streamline cross-border payments with new technologies and (ii) impact the role of the U.S. dollar in international trade.
• Stablecoins. Ms. Bowman asked policymakers to "evaluate the evolving landscape" of digital assets to understand how CBDCs and stablecoins interact with each other and with traditional payment systems.
• Privacy. Ms. Bowman asked policymakers to consider how best to protect consumer and business privacy when using CBDCs while maintaining adequate transparency to deter criminals.
• Innovation. Ms. Bowman asked policymakers to better understand how CBDC technology interacts with other payment infrastructures assuming that eligible financial institutions would build their own technology around a CBDC that would be offered to retail consumers.

Ms. Bowman warned that, without a proper design, a CBDC could lead to disintermediation and pose financial stability risks to the U.S. financial system. She noted that the FRB is carrying out independent research specific to CBDC innovation by (i) conducting policy analyses, (ii) researching new technologies regarding potential CBDC designs and (iii) engaging with the public, industry, academic and public sector for input.