Fed Governor Michelle Bowman Concerned About Risk of Digital Dollar

Federal Reserve Governor Michelle Bowman is concerned about the potential risks associated with a U.S. central bank digital currency (CBDC).

Speaking Tuesday (Oct. 17) at a Harvard Law School event in Washington, Bowman said a digital dollar could pose significant risks and tradeoffs for the financial system. She argued that she has yet to see a compelling argument that a CBDC could address frictions within the payment system better than alternatives, such as the recently launched FedNow® Service instant payment system.

According to Bowman, the FedNow platform, along with The Clearing House’s RTP® service, is designed to make everyday payments faster and more convenient. These services allow consumers to instantly receive funds with same-day access and enable small businesses to manage cash flows more efficiently without processing delays. Bowman believes that future innovations may further enhance these services to effectively address payment system frictions and promote financial inclusion.

While the Federal Reserve has been assessing the potential benefits and drawbacks of introducing a CBDC, Bowman emphasized that a launch would require approval from Congress. Federal Reserve Chair Jerome Powell has previously stated that the central bank would not proceed without the green light from Congress.

“The potential benefits of a U.S. CBDC remain unclear, and the introduction of a U.S. CBDC could pose significant risks and tradeoffs for the financial system. These risks and tradeoffs include potential unintended consequences for the U.S. banking system and considerable consumer privacy concerns,” Bowman said.

See also: FedNow Is Live but Banks Face Integration Decisions

In addition to her concerns about CBDCs, Bowman also raised alarms about stablecoins. She argued that stablecoins could pose risks to consumers and the U.S. banking system. Despite purporting to have convertibility one-for-one with the dollar, stablecoins have been less secure, less stable, and less regulated than traditional forms of money, according to Bowman.

“While I support responsible innovation that benefits consumers,” she said. “I caution against solutions that could disrupt and disintermediate the banking system, potentially harming consumers and contributing to broader financial stability risks.”