Fed Governor's amazing remarks! Stable Coin can bring new opportunities, but the prospects for CBDC are worrying

The director of the Federal Reserve criticized the development direction of CBDC.

Christopher Waller, a member of the Board of Governors of the Federal Reserve System (the Fed), delivered an important speech at the 2024 The Clearing House Annual Conference in New York, offering insights into the current highly anticipated evolution of the payment system. He stated that for more than three years since August 2021, no convincing reasons have been heard to support the necessity of a central bank digital currency (CBDC) issuance in the United States.

Wolle emphasized that as a staunch believer in capitalism, he believes that private enterprises have inherent advantages in payment system innovation. Their competitive mechanisms can better determine which technologies are worth investing in and which may not meet consumer needs. He further pointed out, 'In terms of efficient allocation of resources and resolving payment system deficiencies, the government will struggle to compete with the private sector.' However, he also acknowledges that certain systemic payment issues cannot be fully resolved by private enterprises, and the Federal Reserve will continue to provide the fundamental clearing and settlement infrastructure.

Image source: Reuters Christopher Waller, a director of the Federal Reserve Board of Governors, gave a speech at the 2024 New York Clearing House Annual Meeting.

Optimistic about the development prospects of Stable Coin

Compared to the cautious attitude towards CBDC, Waller is relatively optimistic about the development prospects of Stable Coin. He describes Stable Coin as a 'synthetic dollar' and believes that such digital assets pegged to the US dollar 'may bring many potential benefits' and help eliminate inefficiencies in the financial system. However, he also points out that Stable Coin may face the risk of bank run and legislation is needed to address security issues to prevent destabilizing effects on the financial system.

Powell said that the Federal Reserve must manage financial stability risks while supporting technological progress. He emphasized that the Federal Reserve is committed to improving the efficiency and security of the payment system, believing that this will contribute to the well-being of American families, businesses, and the overall economy. He further explained that the government should focus on addressing issues that the private sector cannot handle independently, thereby promoting an efficient and resilient U.S. payment system.

The industry holds a reserved attitude towards CBDC.

It is worth noting that the US Congress is equally cautious about CBDC. In May of this year, the House of Representatives passed the "CBDC Anti-Monitoring Act", which stipulates that the Federal Reserve Bank cannot issue digital currency without Congressional approval. Patrick McHenry, Chairman of the House Financial Services Committee, expressed concerns that CBDC could become a financial surveillance tool, using China as an example.

In addition, Louisiana Governor Jeff Landry signed HB 488 in June, prohibiting the state from establishing digital currency and preventing authorities from participating in the CBDC pilot program of the Federal Reserve Bank. Legislators in North Carolina also overturned Governor Roy Cooper's veto in September and passed a bill banning the implementation of CBDC in the state.

The Fed's vision for modernizing the payment system

At the meeting, Powell outlined the Fed's overall vision for the modernization of the payment system. He emphasized that as policymakers, when evaluating various issues such as bank regulation and monetary policy, they must first clarify a fundamental question:

What kind of market efficiency problems require government intervention and can only be solved by government intervention?

Using the development history of the US payment system as an example, he pointed out that although the private sector plays an important role in promoting payment innovation, certain coordination problems and information asymmetries often require the participation of central banks to effectively solve them. He mentioned that the financial panic in 1907 highlighted this point. At that time, because some important Financial Intermediary institutions were not members of the New York Clearing House (NYCH), the system lacked sufficient resilience to respond to the crisis.

Waller said, "Compared to many countries dominated by a few large banks, the United States has thousands of banks and credit unions, and connecting these institutions to the support network requires a lot of coordination."

He used the FedNow instant payment system as an example to illustrate how the Fed uses existing institutional connections to address such coordination issues. This approach is consistent with his overall view of the appropriate role of the government - that is, to specifically address coordination problems that the private sector cannot effectively solve, thereby assisting the private sector and promoting responsible innovation in the market.

Overall, Wallo's perspective emphasizes the importance of the private sector in the financial innovation industry, as well as recognition of the potential benefits of stable coins. At the same time, he expressed doubts about the necessity of CBDCs and believes that the government should play a role in supporting private sector innovation rather than directly competing. These views have sparked widespread discussion about the future development of digital currencies and payment systems in the United States.

'Shocking remarks from a member of the Federal Reserve! Stablecoin can bring new opportunities, but the prospects of CBDC are worrisome.' This article was first published in 'encryption city'.