The Governor of the Federal Reserve (âFRBâ), Christopher J. Waller interrogates whether the Federal Reserve should “‘step in and issue a central bank digital currency that the general public could use.”
In a speech to the American Enterprise Institute, Waller argued that a CBDC would “not solve any existing problem that is not addressed more quickly and effectively by other initiatives,” and asked “what market failure or inefficiency requires this specific intervention? “
Mr. Waller reviewed and rejected recently advanced justifications for issuing a U.S. CBDC, including:
- the possibility of physical currency disappearing – Mr. Waller noted the assertion by FRB Chairman Jerome Powell that a US CBDC will not replace US currency;
- that the current payment system will become limited when it comes to the reach of customers – Mr Waller said that current interbank payment services allow an account holder in a commercial bank to make a payment to an account holder in any other US or foreign bank;
- existing payment services were too slow – Mr. Waller pointed out that (i) several commercial banks have recently developed an instant payment service, (ii) the Federal Reserve is developing its own instant payment service, FedNowSM, and (iii) efforts are made to increase the efficiency of cross-border payments;
- that a CBDC would increase access to payment services for the unbanked – Mr Waller cited the results of a 2019 FDIC survey who found that the majority of the unbanked population were “not at all interested” or “not at all interested” in opening a bank account, indicating that a very small minority of these people would be interested in opening a bank account. have a bank account;
- that existing payment services had high expenses – Mr Waller argued that there is little reason to believe that the Federal Reserve would be able to process CBDC payments at a lower cost than payment services. existing private sector payment;
- the potential of a CBDC to spur private sector innovation – Mr. Waller pointed out that stablecoins were an existing payment instrument that could be ‘free’ in the sense that no fees would be required to initiate or receive a payment in stablecoins, suggesting that the use of stablecoins could put pressure on banks to lower fees for their payment services;
- that a CBDC would help maintain the primacy of the US dollar, especially when a Chinese CBDC becomes available – Mr. Waller asked whether (i) non-Chinese companies would choose to allow the Chinese government to monitor all their financial transactions, ( ii) the use of a federal CBDC by US households would significantly help maintain the global supremacy of the US dollar and (iii) the global availability of Federal Reserve CBDC accounts would promote dollar use without raising any issues material relating to, inter alia, money laundering; and
- that a CBDC would thwart the threat posed by new forms of private money to the Federal Reserve’s monetary policy – Mr Waller said commercial banks, stablecoins and any entity that pegs its exchange rate to the dollar American act as an intermediary for American monetary policy.
Mr. Waller argued that the Federal Reserve was not created by Congress to provide the general public with bank accounts. He asserted that the division of operations between the Federal Reserve and commercial banks (i) facilitates competition from the private sector, which allows the market to operate efficiently, and (ii) provides consumers and businesses with the best possible products. quality at the lowest possible cost. Mr. Waller concluded that (i) the division of labor between the Federal Reserve and commercial banks, as mandated by Congress, reflects the idea that the US government should compete with the private sector only as necessary to address âsignificant market failuresâ; and (ii) the introduction of a Federal Reserve CBDC could âdisintermediate commercial banksâ and also raise cybersecurity concerns.
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