Federal Reserve Governor Michelle Bowman shared her views on financial innovation in a speech at Harvard Law School on October 17. Bowman has spoken out on the subject several times and her stance appears to be becoming more and more bearish.
Bowman spoke at length about central bank digital currency (CBDC) and stablecoin. She also viewed “unified ledger” technology and distributed ledger technology as a bridge between existing systems, as well as ways to improve existing technology. She repeated questions she raised before on the need for such innovations and suggests that banks can play a role in preventing government overreach:
“The U.S. brokered banking model helps protect consumers’ financial activities from unnecessary government overreach, and I believe it is an appropriate model for future financial innovation. »
Bowman, a Republican, echoes concerns that exist increasingly heard among politiciansfrom members of Congress to governors, although she did not explain exactly how banks prevent excesses.
A CBDC could lead to banking disintermediation if not “properly” designed, she said. Additionally, the financial system faces challenges such as “friction within the payment system, promoting financial inclusion and providing the public with access to safe central bank money”, but she sees no convincing argument for the superiority of CBDC over other alternatives.
In particular, Bowman saw no advantage in CBDCs over the FedNow service introduced in July. The Fed has stated that it would not issue CBDC in US dollars without a mandate from Congress.
Bowman too reiterated its call for a regulatory framework for financial innovation on the principle of the same regulation for the same risks. The low level of regulation of stablecoins was his main argument against their use.
Governor Bowman’s Speech on Responsible Currency and Payments Innovation: https://t.co/gkYjDmRVYO
– Federal Reserve (@federalreserve) October 17, 2023
Some friction in the payment system is intentional, according to Bowman. “Perceived payment limitations do not always come from issues with existing technology, but rather from existing policies, laws and even consumer and business preferences,” she said, citing as examples the struggle against money laundering and prevention of excesses.
Bowman spoke in favor of research, particularly on CBDCs. In this regard, she broke with some politicians. “The Federal Reserve remains open to multiple options to improve the payments landscape,” she said.