Dive Brief:

• Federal Reserve Governor Michelle Bowman laid out a framework on Tuesday for what she called “responsible innovation,” while advising caution over launching a central bank digital currency, stablecoin or shared ledger technology.
• Bowman’s framework, which she laid out during a speech at a Harvard Law School event in Washington, focused on identifying problems that new technology could solve, researching the technology’s potential risks and implementing any in a way that maintains guardrails. She also emphasized that the U.S. already has a “safe and efficient payment system” that could be disrupted by CBDCs or stablecoins.
• “While I support responsible innovation that benefits consumers, I caution against solutions that could disrupt and disintermediate the banking system, potentially harming consumers and contributing to broader financial stability risks,” Bowman said.

Dive Insight:

Bowman’s remarks come less than two weeks after fellow Fed Governor Chris Waller called a CBDC “something you could do but there’s nothing that makes you need it.” Waller, who spoke earlier this month at a payments conference at the Brookings Institute, posed similar questions as those put forward by Bowman, saying that for two years he has not heard of a compelling need for a CBDC.

Another CBDC-related issue raised by Bowman was with respect to “consumer privacy concerns.” That echoed a sentiment reflected in pending House legislation, referred to as the CBDC Anti-Surveillance State Act. That bill, which was passed by the House Financial Services Committee last month, would prohibit the Federal Reserve from issuing a CBDC.

“Having seen the dated and poor infrastructure of the existing settlement system in the giant global banks, I agree that there is room for innovation that will improve speed and access,” contended RegAlytics CEO Mary Kopczynski, whose company provides regulatory data to companies. “Start-ups think they understand the banking system but fail to appreciate the complexity of how money moves around the world today — I can appreciate [Bowman’s] emphasis on the ‘responsible’ part of the innovation,” she said in an email.

Still, one academic who has researched digital currencies, pushed back against the lack of interest expressed by both the Fed and Congress in this area.

“The Fed talks a lot about the merits of an ‘intermediated’ banking model that prevents ‘government overreach’, but that’s not actually what the intermediation provides,” Willamette University assistant law professor Rohan Grey said in an email to Payments Dive. Last year, Grey played a role in crafting a congressional bill that proposed a digital dollar alternative to a CBDC option.

“The government gets to avoid responsibility for building genuine public payments infrastructure, such as peer-to-peer capable digital cash, while blaming the ‘intermediaries’ for any problems that emerge with the resulting system,” he added.