Fed Governor Waller: No Need for CBDC

The private sector should lead the evolution of payments, while the Federal Reserve should be ready to solve problems that can’t be handled by the private sector alone, Federal Reserve Governor Christopher J. Waller said Tuesday (Nov. 12).

In a speech delivered at The Clearing House Annual Conference in New York City, Waller said he believes that the payments ecosystem, like other goods and services, is generally best served by the private sector.

“One important reason for that is that the private sector, through competition, is typically best situated to sort out good ideas from bad ideas, rather than central banks or other public-sector institutions choosing winners and losers,” Waller said.

“At the early stages of innovation, the true value-added of the application of new technologies is murky. Market competition helps sort that out and typically leads to a wider range of products that can be better suited to the needs of consumers.”

While the government generally shouldn’t compete with the private sector, its involvement may be needed in cases where there are incomplete markets, coordination problems, a lack of resilience or other causes of market inefficiencies, Waller said.

As a recent example of this, Waller pointed to the Federal Reserve’s role with the FedNow® Service, in which it provides the coordination needed to connect thousands of banks and credit unions to a payment network.

“The role we’re playing with FedNow is to help with that coordination problem using our existing connections to those thousands of institutions,” Waller said. “And that approach is consistent with my overall view of the appropriate role of government — to narrowly address problems like those of coordination that can’t always be efficiently solved by the private sector alone.”

A proposal that does not meet Waller’s test is a central bank digital currency (CBDC). Waller said that he asked in an August 2021 speech what problem a CBDC would solve and what market failure or inefficiency requires it as a solution.

“In more than three years, I have yet to hear a satisfactory answer as applied to CBDC,” Waller said in his Tuesday speech.