Wednesday, April 26, 2023

More on Central Bank Digital Currencies (CBDCs)

My last post (here) addressed central bank digital currencies (CBDC).  I wanted to address this topic again today (and will do so again in the future!).  Michelle W. Bowman, a Member of the Board of Governors of the Federal Reserve System, recently gave a speech entitled, Considerations for a Central Bank Digital Currency.  She states “There are two threshold questions that a policymaker needs to ask before any decision to move forward with a CBDC. First, what problem is the policymaker trying to solve, and is a CBDC a potential solution? Second, what features and considerations--including unintended consequences--may a policymaker want to consider in deciding to design and adopt a CBDC?” 

Governor Bowman notes that “a CBDC is simply a new form of digital liability of a central bank…Beyond this baseline definition though, “what is a CBDC" defies a simple definition.”  There is “an array of CBDC design choices” and “policy tradeoffs that this multitude of choices presents.”

One of the policy tradeoffs related to design features that Governor Bowman addresses is privacy considerations. She states that “In thinking about the implications of CBDC and privacy, we must also consider the central role that money plays in our daily lives, and the risk that a CBDC would provide not only a window into, but potentially an impediment to, the freedom Americans enjoy in choosing how money and resources are used and invested. So, a central consideration must be how a potential U.S. CBDC could incorporate privacy considerations into its design, and what technology and policy options could support a robust privacy framework.”

In a prior post (here), I linked to an excellent article by Professors Morgan Ricks, Lev Menand, and John Crawford, FedAccounts: Digital Dollars.  In their article, focused on a potential FedAccount CBDC, the authors address “privacy and civil liberties,” stating that “Although these concerns are legitimate, some perspective is in order for four reasons.” (p. 164) I hope interested BLPB readers read the article for the authors’ explanation of these reasons. 

I also hope interested BLPB readers read Governor Bowman’s speech.  I recently stated (here) and will continue to reiterate that I think widespread education about CBDCs and extensive public debate about the potential adoption of a U.S.-dollar CBDC is tremendously important.

Colleen Baker, Financial Markets | Permalink


Post a comment