Michelle Bowman, a Federal Reserve Board governor, addressed a university audience, emphasizing the necessity for justified and regulated financial innovation.
Speaking at Harvard Law School on Oct. 17, Bowman, a Republican, expressed her evolving cautious stance on financial innovation. Central to her discourse were topics like central bank digital currency (CBDC), stablecoin, “unified ledger” technology, and distributed ledger technology, viewed as potential bridges between existing systems. Bowman probed the imperative for such innovations, positing that banks could act as safeguards against government overreach. She advocated for the U.S. intermediated banking model as a fitting blueprint for future financial innovation.
While echoing concerns shared by various politicians, Bowman didn’t delve into the specifics of how banks could avert overreach. She cautioned against the potential disintermediation of banks if CBDCs weren’t “properly” designed. Additionally, she scrutinized challenges within the financial system, such as payment system frictions, the promotion of financial inclusion, and ensuring public access to secure central bank money. Yet, she found no compelling case favoring CBDC over other alternatives, notably citing the FedNow service introduced in July.
Bowman reiterated the call for a regulatory framework for financial innovation, emphasizing parity in regulation corresponding to similar risks. Her primary argument against stablecoins was the notably low level of regulation. She contended that certain payment system frictions were intentionally designed, attributing perceived limitations to existing policies, laws, and consumer and business preferences, including examples like Anti-Money Laundering and prevention of overreach.
Advocating for research, especially on CBDC, Bowman differentiated herself from some politicians, stating, “The Federal Reserve remains open to multiple options to improve the payments landscape.”
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