Fed’s Christopher Waller ‘highly sceptical’ of US CBDC

US Federal Reserve governor Lael Brainard has spoken out strongly in favour of a CBDC

US Federal Reserve                                 
US Federal Reserve, Washington DC – Photo: Shutterstock

US Federal Reserve governor Christopher Waller has said he is “highly sceptical” that the Fed actually has a “compelling” case to create a Central Bank Digital Currency (CBDC).

Waller made these remarks at the American Enterprise Institute in Washington DC on 5 August.

During the event, Waller asked what problems a CBDC would solve and gave an example: if physical currency disappeared, would a CBDC actively help? The governor said: “Chair Powell has made clear that US currency is not going to be replaced by a CBDC. Thus, a fear of imminently vanishing physical currency cannot be the reason for adopting a CBDC.”

Waller asked if a CBDC would help to expand the reach of the US payment system and said: “it doesn’t look that way to me”. As the existing US payment services already have a nationwide reach, Waller said he feels a CBDC would not make a difference in this sense. Additionally, “account holders at US banks can transfer funds abroad to account holders at foreign banks.”

Transaction speed

A CBDC would not increase the speed of payment services. As Waller explained, a group of commercial banks have already developed an instant payment service (the Real-Time Payment Service, or RTP) and the Fed is creating its own instant payment service, FedNow.

Waller said: “These services will move funds between account holders at US commercial banks immediately after a payment is initiated. While cross-border payments are typically less efficient than domestic payments, efforts are underway to improve cross-border payments as well.”

The governor pointed out that all these actions have taken place without a CBDC.

Financial inclusion

Nor does Waller believe that a CBDC would encourage financial inclusion by giving the unbanked access to financial services. According to recent Fed research, 5.4% of the US were unbanked in 2019. The same survey also found that 75% of the unbanked population “were not at all interested” or “not very interested” in having a bank account.

Fed research shows that only just over 1% of the US are both unbanked and potentially interested in CBDCs. In response to this, Waller said: “It is implausible to me that developing a CBDC is the simplest, least costly way to reach this 1 percent of households.”

Fed’s Lael Brainard says US needs a CBDC

At the beginning of August, US Federal Reserve governor Lael Brainard reportedly spoke out strongly in favour of a central bank digital currency (CBDC) while speaking at the Aspen Institute’s Economic Strategy Group – and said that it is a matter of “urgency” for the US central bank to develop one.

”The dollar is very dominant in international payments, and if you have the other major jurisdictions in the world with a digital currency, a CBDC offering, and the US doesn't have one, I just, I can’t wrap my head around that. That just doesn't sound like a sustainable future to me,” said Brainard, according to Reuters.  

Brainard put particular emphasis on China having a CBDC and the problems this could cause the US if the nation did not have its own.

Waller not fazed by Chinese CBDC

The possibility of a Chinese CBDC is not seen by Waller as a particular threat to the US. The governor does not believe a “Chinese CBDC will undermine the status of the US dollar”.

Waller asked: “Why would non-Chinese firms suddenly desire to have all their financial transactions monitored by the Chinese government? Why would this induce non-Chinese firms to denominate their contracts and trading activities in the Chinese currency instead of the US dollar?”

Interest in CBDCs has doubled since 2020

Despite these differences of opinion inside the Fed, research from the Atlantic Council’s CBDC tracker has found that since 2020, the number of countries that are looking into a CBDC has doubled, with 81 countries now actively exploring the notion.

Out of these, five have fully launched CBDCs, with The Bahamas being the first to do so. Of the remaining 76 countries, 33 are researching the idea, 15 are in development and 14 are in pilot stages.

Further reading: Fed’s Lael Brainard says US urgently needs a CBDC

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