Fed Governor Bowman sees 'some' potential for wholesale central bank digital currency

Federal Reserve Governor Michelle Bowman said Tuesday that a wholesale central bank digital currency could be promising for future settlement of some financial market transactions and processing international payments. Still, it's "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 said in a prepared speech at Georgetown University, citing financial stability risks and the potential intrusion on users' privacy. While the U.S. has not yet created a CBDC -- a central bank-issued digital currency representing a nation's fiat currency -- both the Biden administration and the Federal Reserve have been assessing the potential risks and benefits since last year. The Fed has previously said it would seek approval from Congress before implementing a CBDC. In her remarks, Bowman casted doubts on the need for a digital U.S. dollar, as “the risk that a CBDC would provide not only a window into, but potentially an impediment to, the freedom Americans enjoy in choosing how money and resources are used and invested.” Also, a CBDC that pays interest could potentially limit banks' ability to lend and "increase the cost of capital across the economy," she warned . "It would be irresponsible to undermine the traditional banking system by introducing a CBDC without appropriate guardrails to mitigate these potential impacts on the banking sector and the financial system." Here's an in-depth take on what CBDCs are and how they are different from cryptocurrencies. In January, Bank of America contended that CBDCs are the future of money and payments as most of the globe has been exploring them .