Federal Reserve Governor Christopher Waller expressed skepticism about the need for a U.S. central bank digital currency (CBDC) in recent remarks, arguing that the private sector is better equipped to innovate in the payments space. While acknowledging the Federal Reserve’s role in ensuring a secure and efficient payment system, Waller emphasized that the private sector is more adept at allocating resources and addressing existing shortcomings.
“It is too early to assess the impact of new technologies on payment system friction,” Waller stated, “but the private sector is well positioned to explore these developments.” He further argued that the government would struggle to compete with private companies in developing and deploying new financial technologies. While the Fed provides core clearing and settlement infrastructure, Waller believes private sector innovation should be the driving force behind payment system advancements.
Waller’s comments touched on the evolving landscape of digital payments, including stablecoins, which he described as “basically a synthetic dollar.” He acknowledged the potential benefits of stablecoins for the financial system but stressed the need for regulation to mitigate risks, particularly the potential for bank runs. He also noted that the value of new payment technologies is often unclear in their early stages.
Meanwhile, Federal Reserve Bank of Richmond President Thomas Barkin offered a positive outlook on the U.S. economy. Speaking at the Baltimore Common Summit on Tuesday, Barkin described the current economic situation as “very good,” citing a “strong but more discerning consumer” and a “more productive and higher-value labor force.” This strength, he suggested, provides the Fed with flexibility in managing borrowing costs.
Barkin acknowledged that interest rates, while off their peak, remain above historical lows. He outlined two potential scenarios for the economy moving forward. In one, decreased election uncertainty could spur renewed investment and hiring, allowing the Fed to focus on upside inflation risks. Alternatively, companies facing margin compression might resort to layoffs, shifting the Fed’s focus towards employment risks. “No matter how the economy develops,” Barkin assured, “the Fed has the ability to respond appropriately.”
