His opinions on the topic of central bank digital currency (CBDC) were quite clear. “I think the first order of business is to ask whether there is a compelling need for the Fed to create a digital currency. I am highly skeptical,” he said.
While many believe a CBDC can address weaknesses in the current payment systems, Waller is not buying it. “I am not convinced as of yet that a CBDC would solve any existing problem that is not being addressed more promptly and efficiently by other initiatives.”
A common justification for introducing a CBDC is to promote financial inclusion, as digital cash would be accessible without the need for a bank account. Governor Waller refuted this argument, citing a Federal Deposit Insurance Corporation (FDIC) survey that found 75 percent of the unbanked population in the U.S. “were not at all interested” or “not very interested” in having a bank account.
Countries such as Sweden are ramping up their CBDC testing due to the fast disappearing usage of cash. However, the U.S. is not facing the issue of its economy becoming “cashless”. Governor Waller brought up Federal Reserve Chair Jerome Powell’s previous declaration that a CBDC will not replace the U.S. currency.
According to Governor Waller, there is a big risk that a Fed CBDC could lead to commercial bank disintermediation.
Stablecoins were also discussed in the speech. “The private sector is already developing payment alternatives to compete with the banking system,” said Governor Waller. However, the disadvantage is that many governments are uncomfortable ceding payment over to the private sector.
Overall, Governor Waller’s speech echoed the sentiments of a recent Congressional debate, where several Senators, mainly fellow Republicans, expressed reticence over a CBDC.
It seems that both Congress and the Federal Reserve are somewhat divided on the need for a CBDC. Last Friday, Federal Reserve Governor Lael Brainard spoke strongly in favor of a digital dollar, citing the progress made by other countries as a key reason to advance U.S. research.
The Fed is currently in the process of conducting a public survey on the potential benefits and drawbacks of a CBDC. It plans to publish a discussion paper in early September.
Meanwhile, other countries have been stepping up their explorations of potential CBDCs, with several European countries involved in tests. Estonia recently shared its results, and the Governor of the Central Bank of Ireland shared his thoughts on the promise of a CBDC.