Federal Reserve Governor’s Views on the US CBDC Plans Might Surprise Many

The hype around Central Bank Digital Currencies (CBDC) and China’s progress in the field has prompted many other nations to accelerate their plans. Lawmakers in the US are no different and have called for accelerated development of the digital US Dollar. However, Federal Reserve governor Christopher Waller has shared a contrasting view that might surprise many.

Waller during a public policy think tank event organized American Enterprise Institute negated the need for a digital dollar. He dismissed the idea of sovereign digital currency as a solution in search of a problem claiming there is enough innovation in the private sector. He explained,

“The private sector is already developing cheaper payment alternatives to compete with the banking system,” Waller says. “Hence it seems unnecessary for the Federal Reserve to create a CBDC to drive down payment demands we see by banks.”

Waller Says CBDC Won’t Solve any Problem

The majority of commercial banks already use digital transactions recorded as a liability for the bank. There is no distinction between the current transaction and what would be done using a CBDC since commercial banks peg their exchange rate 1:1 against the Federal Reserve. Thus waller believes CBDC is nothing more than hype.

“It seems to me that private sector innovations might reduce the mark-up charged by banks more effectively than a CBDC would,” Waller says. “If commercial banks are earning rents from their market power, then there is a profit opportunity for non-banks to enter the payment business and provide the general public with cheaper payment services.”

While Waller’s comments are quite in contrast to several lawmakers, it does pose the right questions as to what additional utility it could be to the payment sector apart from following the blockchain trend.

China’s progress in the field has forced several nations to work harder to launch their CBDC. However, China aims to use the digital yuan as a way to track the flow of money outside the country and have full control of the flow of money. Several other nations facing economic sanctions plan to use CBDC for international trade as well.