The Fed’s apparent split on CBDC and stablecoins may not be a bad thing

Back in the spring, Federal Reserve Chairman Jerome Powell said the Bank would 'soon' release research on a central bank digital currency. It's now November and there's still no research in sight. But focusing on the Fed's inability to converge on a single CBDC opinion misses the point

Opinions
25 November 2021
stablecoin_USDC_-paidfor.jpg

There is one obvious explanation for the delayed CBDC paper: there are fundamental differences in the Fed board on CBDC and stablecoins. While some are clearly supportive of CBDC, and primarily see stablecoins as a means of payment that need to be tightly regulated (e.g. just like banks, see our take on the recent President's Working Group report) other Fed board members are wary about the need for a central bank digital currency. Fed Governor Christopher Waller said last week that his scepticism stems from the rapid innovation taking place in payments. In simple terms, "payments innovation, and the competition it brings, is good for consumers," he said.

Waller goes on to say that he is happy to see stablecoins grow and prosper, developing a competitive market for payments, driven by bank deposits, stablecoins and possibly others. This perspective is diametrically opposed to the view that money is a public good, and that the central bank should have a strong presence in digital payment markets by issuing a CBDC. The latter position is similar to the prevalent view in Europe, although anxiety over bigtech is also a factor in the discussions there.

The role of the public vs private sector in the provision of money, and the role of transparency vs more proactive user protection, are two very fundamental debates highlighted by Waller's speech.

One could scoff at the Fed board openly airing its divisions on these fundamental points. I'd rather congratulate them on putting these very important issues on the table for public consideration.


Disclaimer

"THINK Outside" is a collection of specially commissioned content from third-party sources, such as economic think-tanks and academic institutions, that ING deems reliable and from non-research departments within ING. ING Bank N.V. ("ING") uses these sources to expand the range of opinions you can find on the THINK website. Some of these sources are not the property of or managed by ING, and therefore ING cannot always guarantee the correctness, completeness, actuality and quality of such sources, nor the availability at any given time of the data and information provided, and ING cannot accept any liability in this respect, insofar as this is permissible pursuant to the applicable laws and regulations.

This publication does not necessarily reflect the ING house view. This publication has been prepared solely for information purposes without regard to any particular user's investment objectives, financial situation, or means. The information in the publication is not an investment recommendation and it is not investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Reasonable care has been taken to ensure that this publication is not untrue or misleading when published, but ING does not represent that it is accurate or complete. ING does not accept any liability for any direct, indirect or consequential loss arising from any use of this publication. Unless otherwise stated, any views, forecasts, or estimates are solely those of the author(s), as of the date of the publication and are subject to change without notice.

The distribution of this publication may be restricted by law or regulation in different jurisdictions and persons into whose possession this publication comes should inform themselves about, and observe, such restrictions.

Copyright and database rights protection exists in this report and it may not be reproduced, distributed or published by any person for any purpose without the prior express consent of ING. All rights are reserved.

ING Bank N.V. is authorised by the Dutch Central Bank and supervised by the European Central Bank (ECB), the Dutch Central Bank (DNB) and the Dutch Authority for the Financial Markets (AFM). ING Bank N.V. is incorporated in the Netherlands (Trade Register no. 33031431 Amsterdam).