FRB Governor Bowman Urges "Responsible Approach" to Improve Payment Infrastructure

Federal Reserve Board ("FRB") Governor Michelle W. Bowman questioned whether the potential benefits of a U.S. central bank digital currency ("CBDC") are worth the significant risks and tradeoffs for the financial system.

In remarks before the Harvard Law School Program on International Financial Systems Roundtable, Ms. Bowman urged policymakers to identify the goals to be accomplished before endorsing a CBDC or stablecoin format. She emphasized the recent success of the "FedNow Service," the Federal Reserve’s new interbank system for instant payments, and noted that "'new' often leads [policymakers] to overlook existing success. . .."

Retail CBDC and Stablecoin

Ms. Bowman said that while CBDCs have been touted as an option to address frictions within the payment system, promote financial inclusion and provide access to safe central bank money, she has "yet to see a compelling argument that a U.S. CBDC could solve any of these problems[.]" Ms. Bowman said that if not properly designed, a CBDC could threaten disruption to the banking system.

Ms. Bowman also considered stablecoins as an alternative to traditional payment forms, but said that while they "purport to have convertibility one-for-one with the dollar," in practice, they offer less stability and are less regulated.

Wholesale Payment Infrastructure

Ms. Bowman said that it is critical to evaluate risks and tradeoffs associated with new innovations, such as (i) common platforms used to facilitate digital asset transactions and (ii) central banks using distributed ledger technologies to achieve interoperability and facilitate cross-border, cross-currency payments. Ms. Bowman advocated for innovation that distinguishes between "payment frictions" that could benefit from technological developments and payment policies that exist to manage key risks. By example, she said that compliance requirements to counter the financing of terrorism are designed to accomplish specific policy goals and are not a reflection of limitations in existing technology. Ms. Bowman urged policymakers to identify potential improvements to existing payment infrastructures and the "range of alternatives that could address any problems."