On October 17th, Michelle Bowman, a member of the Board of Governors of the US Federal Reserve, expressed her views on financial innovation in a lecture at Harvard Law School. Bowman has spoken several times on the subject, and her position appears increasingly vulnerable.
Mr. Bowman spoke at length about central bank digital currencies (CBDCs) and stablecoins. She also looked at “unified ledger” and distributed ledger technologies as bridges between existing systems, and how existing technologies can be improved. She reiterated questions she had raised earlier about the need for such innovation, and she suggested banks could play a role in preventing government overreach.
“The U.S. intermediary banking model helps protect consumer financial activities from unnecessary government overreach, and I believe it is the right model for future financial innovation.”
Bowman, a Republican, did not elaborate on how banks would prevent overreach, but echoed concerns increasingly being heard among politicians, from lawmakers to governors.
If not designed “properly”, CBDCs could lead to the disintermediation of banks, he said. Additionally, the financial system faces issues such as “friction within payment systems, promoting financial inclusion, and providing citizens with access to secure central bank funds,” but she believes CBDCs are more difficult than other alternatives. I don’t think there is any convincing argument that it is better.
In particular, Bowman saw no advantage to CBDC compared to the FedNow service introduced in July. The Fed will not issue USD CBDCs without Congressional authority, he said.
Related: US Federal Reserve says stablecoins can be a ‘source of financial instability’
Bowman also reiterated his call for a regulatory framework for financial innovation based on the principle of equal regulation for equal risks. The low level of regulation of stablecoins was her main argument against their use.
Governor Bowman’s speech on responsible innovation in money and payments: https://t.co/gkYjDmRVYO
— Federal Reserve System (@federalreserve) October 17, 2023
Bowman said some of the friction in payment systems is caused by design. “Perceived payment limitations are not necessarily due to existing technology issues, but rather due to existing policies, laws, and even consumer and business preferences,” she said, e.g. He cited anti-money laundering measures and prevention of excessive reach.
Bowman spoke out about research involving CBDCs. On this point, she broke with some politicians. She said the Fed “remains open to multiple options to improve the payments environment.”
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