Home Press Release Fed board member says CBDC risks outweigh benefits

Fed board member says CBDC risks outweigh benefits

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Governor Michelle Bowman said:hard to imagine the worldThe benefits of Central Bank Digital Currencies (CBDC) may justify “unintended consequences”.

However, she said the United States should not stop considering the potential development of a CBDC and should continue to work with relevant international bodies such as the Bank for International Settlements, the Financial Stability Board and the G7 to determine the best course of action. I added that it should.

In a speech at Georgetown University on April 18, Bowman, a member of the Federal Reserve Board, said:

She defined a CBDC as digital debt issued by a central bank in the form of a national currency such as dollars or pounds, but that is the end of the baseline definition, and all CBDCs are not necessarily on a distributed ledger system. It doesn’t have to be built on, she added.

She said the key benefits of CBDCs are often cited as faster payments and greater financial inclusion. However, the FedNow system already allows for instant domestic payments, and financial inclusion is at the highest level possible in the United States.

She added that traditional cross-border payments are risky and slow when it comes to money laundering and terrorism financing, and CBDCs will be subject to the same regulations.

threshold question

Bowman said policymakers should consider two main “threshold issues” when considering CBDC implementation. she said:

“From my point of view, the fundamental question is what problems a CBDC can solve.”

Second, policy makers should consider whether the problem can be solved by the different characteristics of CBDC. If so, we need to consider what unintended consequences the financial system might have.

Additionally, Bowman said policymakers should consider whether they are willing to address the potential consequences.

She said one of the unintended consequences of the CBDC could be the destabilization of the US banking system.

CBDC should not be replaced

Bowman said policymakers need to ensure that the CBDC complements the U.S. banking system and doesn’t “cannibalize” it.

For example, if a CBDC were to offer interest rates equal to or higher than commercial bank deposits, it would have a devastating effect on the banking sector, leading to a shortage of funds available for lending and ultimately destabilizing the whole. produces financial system.

Bowman said the U.S. banking system is a “mature, well-functioning, effective and efficient system” that underpins the nation’s economy and should be protected from unintended shocks.

Bowman added:

“It would be irresponsible to undermine the traditional banking system by introducing a CBDC without proper guardrails to mitigate its potential impact on the banking sector and financial system.”

Posted in: Featured, Regulation
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