Federal Reserve Governor Michelle Bowman voiced concerns over the potential risks and tradeoffs of a U.S. central bank digital currency (CBDC) and stablecoins in a Harvard Law School event on Tuesday. Bowman underscored the consumer and banking system risks of stablecoins and digital assets, insisting that providers comply with banking regulations.
She expressed skepticism about the introduction of a CBDC, citing possible disruptions to the banking system and serious consumer privacy concerns. Bowman argued that no convincing case has been made that a CBDC could better facilitate everyday payments or reduce payment system frictions than alternatives like FedNow or future innovations.
FedNow, which is endorsed by Fed Chair Jerome Powell, aims to foster financial inclusion by providing same-day fund access and efficient cash flow management for consumers and small businesses. Despite ongoing assessments by the Federal Reserve on CBDC's potential benefits and drawbacks, congressional approval would be necessary for any launch.
Bowman also warned about the risks associated with stablecoins, digital tokens that claim one-for-one dollar convertibility but are less secure, less stable, and less regulated than traditional forms of money. These digital assets pose substantial risks to consumers and the U.S. banking system.
In her speech, Bowman emphasized the need for a clear regulatory framework for digital assets that mirrors successful U.S. banking practices. She insisted that activities posing similar risks should be governed by the same regulations, irrespective of product or provider, thereby ensuring strong consumer protection even outside the regulatory perimeter. This approach would help maintain the existing success of regulations while fostering responsible innovation advantageous to consumers.
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