Cautioning against “American susceptibility to boosterism and fear of missing out” leading to “occasionally impetuous, deluded crazes or fads,” Federal Reserve Vice Chairman for Supervision today raised several concerns about the purported benefits and “considerable risks” of developing a U.S. central bank digital currency. The speech comes as the Fed undertakes a wide-ranging research project on the costs and benefits of a U.S. CBDC.
Speaking at the Utah Bankers Association’s convention in Sun Valley, Idaho, Quarles said the potential benefits of a U.S. CBDC are “unclear,” given that the ones most often touted by CBDC backers—relevance of the dollar and financial inclusion—are already being advanced by market participants. “I believe we can promote financial inclusion more efficiently by taking steps to make cheap, basic commercial bank accounts more available to people for whom the current cost is burdensome, such as the Bank On accounts developed in collaboration between the Cities for Financial Empowerment Fund and many local coalitions,” he said. Even if realized, he added, such benefits would be questionable given the “very good” condition of the U.S. payments system and ongoing private sector and Fed efforts to improve it.
Quarles also highlighted risks from a U.S. CBDC, including cyberattacks, money laundering risks, undermining private-sector competition and operational risk as a Fed “CBDC could, in essence, set up the Federal Reserve as a retail bank to the general public. . . . We will need to consider whether the potential use cases for a CBDC justify such costs and expansion of the Federal Reserve’s responsibilities into unfamiliar activities, together with the risk of politicization of the Fed’s mandate that would come with such an expansion.”
Earlier this month, the American Bankers Association summited a statement for the record on CBDCs to the Committee on Banking, Housing, and Urban Affairs.