Federal Reserve Governor Christopher Waller on Launching a Digital Currency | Insights and Debate

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연준 이사 Waller는 CBDC 도입에 회의적이다. 현행 결제망(RTP, 연준 즉시결제)과 민간 혁신으로 결제 속도·비용 문제가 해결되고 있어 CBDC가 해결할 명확한 문제가 없다고 본다. 미 미결제 은행계좌 약 5.4%(FDIC 2019) 중 관심 있는 비중은 1% 남짓이라 금융포용 근거도 약하다. 스테이블코인 등 민간 결제 혁신이 은행 수수료를 압박할 수 있다고 본다. 사이버보안 위험과 은행 중개 기능 훼손이 주요 리스크다. 경제전망은 낙관적이며 고용 회복이 빠르고 인플레이션은 일시적일 가능성이 크지만 가격전가력 확대는 상방 리스크다. 자산 가격 방향에 대한 구체적 예측은 없다.

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01. good morning thanks to everyone for joining us today for a speech by Federal Reserve Governor Christopher Waller on whether the FED should adopt a digital currency I'm Michael strain director of Economic Policy studies at the American Enterprise Institute the majority of the world central banks are exploring digital currency most proponents for a central bank digital currency could most proposals for a central bank digital currency excuse me could function like US dollars they could be widely accepted and alternative to cash in an increasingly cashless Society in the US a digital currency could give access to the financial system to the unbanked and may increase the efficiency of financial transactions at the same time the adoption of a digital currency could be extremely disruptive to existing financial institutions should the FED launch a digital currency Governor Waller will give a speech discussing his views on this important issue a quick note on the Run of show uh Governor Waller will give his speech for around 20 or 25 minutes then he and I will have a discussion about this topic uh and then we will take questions from you you can submit your questions using a Twitter hashtag ask AEI Eon that's ask AEI e n or you can email your questions to my colleague Mariana Mitchell whose email address is on the web page for for this event let me briefly introduce Governor Waller Christopher J Waller took office as a member of the Board of Governors of the Federal Reserve System on December 18 2020 to fill a term uh ending in January of 2030 prior to his appointment to the board Dr Waller served as Executive Vice President and director of research at the Federal Reserve Bank of St Louis a position he's held since 2009 he has held faculty of appointments at the University of Notre Dame at the University of Kentucky and at Indiana University Governor Waller thank you so much for joining us today thanks again to everybody who's tuning in both to the live stream and who will watch the video later at their convenience and Governor turn it over to you thank you Michael and thank you to the American Enterprise Institute for the invitation to speak to you today the payment system is changing in profound ways as individuals demand faster payments central banks including the FED respond and non-bank entities seek a greater role in facilitating payments in all of this excitement there are also calls for the Federal Reserve to get in the game and issue a central bank digital currency otherwise known as a cbdc that the general public could use chair Paul recently announced that the Federal Reserve will publish a discussion paper on the benefits and cost of crew creating a cbdc this topic is of special interest to me since I have worked on monetary theory for the last 20 years and researched and written about Alternative forms of money for the past seven my speech today focuses on whether a cbdc would address any major problems affecting our payment system there are also potential risk associated with the cbdc and I will touch on those at the end of my remarks but at this early juncture in fed discussions 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 in all the recent exuberance about cbdcs Advocates point to many potential benefits of a Federal Reserve digital currency but they often fail to ask a simple question what problem would a CBD solve alternatively what market failure or inefficiency demands this specific intervention after careful consideration 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 before getting into the details let me start by clarifying what I mean by CB CDC put simply a cbdc is a liability of the central bank that can be used as a digital payment interest instrument for purposes of this speech I will focus on general purpose cbdcs that is cbdcs that could be used by the general public not just by Banks or other specific types of Institutions a general purpose cbdc could potentially take many forms forms some of which could act as Anonymous cash-like payment instruments for this speech however I will focus on account-based forms of cbdc which the bank for international settlements recently described as the most promising way of providing central bank money in the digital age any such general purpose account based cbdc would likely require explicit Congressional authorization it is useful to note that in our daily lives we use both central bank money and Commercial Bank money for transactions central bank money I.E money that is a liability of the Federal Reserve includes physical currency held by the general public and digital account balances held by banks at the Federal Reserve the funds Banks put into these accounts are called Reserve balances which which are used to clear and settle payments between banks in contrast checking and savings accounts at commercial banks are liabilities of the banks not the Federal Reserve the bulk of transactions by value that us households and firms make each day use Commercial Bank money as the payment instrument under current law the Federal Reserve offers accounts and payment services to commercial Banks these accounts provide a risk-free settlement asset for trillions of dollars of daily interbank payments importantly the use of central bank money to settle interbank payments promotes Financial stability because it eliminates credit and liquidity risk in systemically important Payment Systems Congress did not establish the Federal Reserve to provide accounts directly to the general public the Federal Reserve instead Works in in the background by providing accounts to commercial Banks which then provide bank accounts to the general public under this structure commercial Banks act as an intermediary between the Federal Reserve and the general public the funds and Commercial bank accounts are digital and can be used to make digital payments to households and businesses but commercial banks Promise to re redeem a dollar in one's bank account into $1 of US currency in short Banks Peg the exchange rate between Commercial Bank money and the US dollar at one to one due to substantial regulatory supervisory oversight and Federal Deposit Insurance households and firms reasonably view this fixed exchange rate as perfectly credible consequently they treat commercial bank money and central bank money as perfect substitutes they are interchangeable as means of payment The credibility of this fixed exchange rate between commercial and central bank money is what allows our payment system to be stable and efficient I will return to this point later this division of functions between the Federal Reserve and Commercial Banks reflects an economic truth that markets operate efficiently when private sector firms compete to provide the highest quality products to Consumers and businesses at the lowest possible cost in general the government should compete with the private sector only to address market failures this brings us back to my original question what is the problem with our current payments system that only a cbdc could solve could it be that physical currency will disappear as I mentioned before the key to having a credible Commercial Bank money is the promise that banks will convert a dollar of digital bank money into a dollar of us physical currency but how are banks to deliver on this promise if US currency disappears accordingly many central banks are considering adoption of a cbdc as their economies become cashless eliminating currency is a policy choice however not an economic outcome and chair Paul has made clear the US currency is not going to be replaced by a cbdc thus a fear of imminently Vanishing physical currency cannot be the reason for adopting a cbdc could it be that the payment system is too Limited in reach and that introducing a cbdc would make the payment system bigger broader and more efficient it certainly doesn't look that way to me our existing interbank payment servic have nationwide reach meaning that an account holder at one Commercial Bank can make a payment to an account holder at any other US Bank the same applies to International payments account holders at US Banks can transfer funds abroad to account holders at foreign Banks so a lack of connectedness and Geographic breath in the US payment system is not a good reason to introduce a cbdc could it be that existing payment services are too slow a group of commercial Banks has recently developed an instant payment service the realtime payment service or RTP and the Federal Reserve is creating its own instant payment service fed now these services will move funds between account holders at us commercial Banks immediately after a payment is initiated while crossborder payments are typically less efficient than domestic payments efforts are are underway to improve crossb payments as well these Innovations are all moving forward in the absence of a cbdc consequently facilitating speedier payments is not a compelling reason to create a cbdc could it be that too few people can access the payment system some argue that introducing a cbdc would improve Financial inclusion by allowing the unbanked to more readily Access Financial Services to address this argument we need to know first the size of the unbanked population and second whether the unbanked population would use a Federal Reserve cbdc account according to a recent Federal Deposit Insurance Corporation FDIC survey approximately 5.4% of us households were unbanked in 2019 the FDIC survey also found that approximately 75% of the unbanked population were not at all interested or not very interested in having a bank account if the same percentage of the unbanked population would not be interested in a federal reserve cbdc account this means that a little more than 1% of us households are both unbanked bed and potentially interested in a federal reserve cbdc account it is implausible to me that developing a cbdc is the simplest least costly way to reach this 1% of households instead we could promote Financial inclusion more efficiently for example encouraging widespread use of lowcost commercial bank accounts through the city's for financial empowerment Bank on project could it be that a cbdc is needed because existing payment syst services are unreasonably expensive in order to answer this question we need to understand why the price charge for a payment might be considered high in economics the price of a service is typically composed of two parts the marginal cost of providing the service and a markup that reflects the market power of the seller the marginal cost of processing processing a payment depends on the nature of the payment for example paper check versus electronic transfer the technology used for example batch payments versus real-time payments and the other services provided in processing the payment for example risk and fraud services since these factors are primary Tech primarily Tech technological and there is no reason to think that the Federal Reserve can develop cheaper technology than private firms it seems unlikely that the Federal Reserve would be able to process cbdc payments at a materially lower marginal cost than existing private sector payment services the question then is how is CBC would affect the markup charged by banks for a variety of payment services the markup that a firm charges depends on its Market power and thus the degree of competition it faces introducing a cbdc would create additional competition in the market for payment services because the general public could use the cbdc accounts to make payments directly through the Federal Reserve that is a CBC cbdc would allow the general public to bypass the Commercial Bank banking system deposits would flow from commercial Banks into cbdc accounts which would put pressure on banks to lower their fees or raise the interest rate paid on deposits to prevent additional deposit outflows it seems to me however that private sector Innovations might reduce the markup charged by Banks more effectively than a cbdc would if commercial banks are earning rents from their Market power then there is a profit opportunity for non-banks to enter the payment business and provide the general public with cheaper payment services and indeed we are currently seeing a surge of non-banks getting into payments for example in recent years stable coin Arrangements have emerged as a particularly important type of nonbank entrance into the payments landscape stable coins are digital assets whose value can be tied to one or more assets such as a sovereign currency a stable coin could serve as an attractive payment instrument if it is pegged one to one to the dollar and is fully backed by a safe and liquid pool of assets if one or more stable coin Arrangements can develop a significant user base they could become a major Challenger to banks for processing payments importantly payments using such stable coins might be free in the sense that there would be no fee required to initiate or receive a payment accordingly one can easily imagine that competition from stable coins could pressure Banks to reduce their markup for payment services now please note that I am not endorsing any particular stable coin some of which are not backed by safe and liquid assets the promise of redemption of a stable coin into $1 Us doll is not perfectly credible nor have these been tested by an actual run on a stable coin to see if they actually work there are many legal Regulatory and policy issues that need to be resolved before stable coins can safely proliferate my point however is that the private sector is already developing cheaper payment alternatives to compete with the banking system hence it seems unnecessary for the Federal Reserve to create a cbdc to drive down payment rents received by Banks returning to possible problems a cbdc could solve it is often argued that the creation of a cbdc would spur innovation in the payment system this leads me to ask do we think there is insufficient Innovation going on in payments to the contrary it seems to me that private sector Innovation is occurring quite rapidly in fact faster than Regulators can process so spurring Innovation cannot be a compelling reason to introduce a cbdc could it be however that the types of Innovations being pursued by the private sector are the wrong types of payment Innovations I see some Merit in this argument when I consider crypto assets such as Bitcoin that can be used to facilitate illicit activity but a cbcd cbdc is unlikely to deter the use of crypto assets that are designed to evade governmental oversight could the problem be that government authorities have insufficient information regarding the financial transactions of US citizens in general the government has sought to balance individual's right to privacy with the need to prevent illicit Financial transactions such as money laundering for example while the government does not receive all transaction data regarding account holders at commercial Banks the bank secrecy act does require that commercial Banks report suspicious activity to the government depending on its design cbdc accounts would give the Federal Reserve access to a vast amount of information regarding the financial transactions and trading patterns of cbdc account holders the introduction of a cbdc in China for example example likely will allow the Chinese government to most more closely monitor the economic activity of its citizens should the Federal Reserve create a cbdc for the same reason I for one do not think so could it be that the reserved currency status of the US dollar dollar is at risk and the creation of a Federal Reserve cbdc is needed to maintain the Primacy of the US Dollars some commentators have expressed concern for example that the availability of a Chinese cbdc will undermine the status of the US dollar I see no reason to expect that the world will flock to a Chinese C BDC or any other why would non-chinese firms suddenly desire to have all of their financial transactions monitored by monitored by the Chinese government why would this induce non-chinese firms to denominate their contracts and invoice trading activities in the Chinese currency instead of the US dollar I fail to see how allowing us households to for example pay their electric bills the in electric a Federal Reserve CBD cbdc account instead of a commercial bank account would help to maintain Global dollar Supremacy now of course Federal Reserve cbdc accounts that are available to persons outside the United States might promote use of the dollar but Global availability of federal reserves cbdc accounts would also raise acute problems related to among other things money laundering finally could it be that new forms of private money such as stable coins represent a threat to the Federal Reserve for conducting monetary policy many commentators have suggested that new private monies will diminish the impact of Federal Reserve policy actions since they will act as competing monetary systems it is well established in international economics that any country that pegs it its exchange rate to the US dollar surrenders its domestic monetary policy to the United States and imports us monetary policy the same logic applies to any entity that pegs its exchange rate to the US dollar consequently commercial Banks and stable coins pegged to the US dollar act as conduits for us monetary policy and amplify policy actions by the Federal Reserve so if anything private stable coins pegged to the dollar broaden the reach of us monetary policy rather than diminish it after exploring many possible problems that a cbdc could solve I am left with the conclusion that a cbdc remains a solution in search of a problem that leaves us only with more philosophical reasons to adopt a CBD DC one could argue for example that the general public has a fundamental right to hold a riskless digital payment instrument and as cbdc would do this in a way no privately issued payment instrument can on the other hand thanks to Federal Deposit Insurance commercial bank accounts already offered the general public a riskless digital payment instrument for the vast majority of transactions one could also argue that the Federal Reserve should provide a digital option as an alternative to the commercial banking system the argument is that the government should not force its citizens to use the commercial banking system but should instead allow access to the central bank is a public service available to all as I noted earlier in my speech however the current congressionally mandated division of functions between the Federal Reserve and Commercial Banks reflects an understanding that in general the government should compete with the private sector only to address market failures this Bedrock principle has stood America in Good Deeds since its founding and I don't think that cbdcs are the case for making an exception in summary while cbdcs continue to generate enormous interest in the United States and other countries I remain skeptical that a Federal Reserve cbdc would solve any major problem confronting the US payment system there are also potential costs and risks associated with cbdc some of which I have alluded to already I have noted my belief the government interventions into the economy should come only to address significant market failures the competition of a Fed cbdc could disintermediate commercial commercial Banks and threaten a division of labor in the financial system that works well and as cyber security concerns mount a cbdc could become a new Target for those threats I expect these and other potential risk from a cbdc will be addressed in the forthcoming discussion paper and I intend to expand upon them as the debate over digital currencies moves forward thank you very much thank you Governor Waller let me Begin by asking uh a couple nuts and bolts questions so part of the appeal among Advocates of digital currency is that they would reduce the costs associated uh with um uh you know relative to commercial Banks something you've mentioned would if the US were to move forward with this would account holders face zero costs would there be some costs uh can you can you uh elaborate and shed some light on that yeah it's not obvious that the Federal Reserve could issue a cbdc uh costlessly um the uh by law the FED is supposed to recoup whatever costs are involved in providing payment services for example so AC our fed now we have to recoup those costs we can't do that by providing that for free now on the other hand we are not required to recoup costs for the issuance of currency is cbdc a substitute for currency is it equivalent to currency do we not have to recoup cost that's one of the issues that we'll take up in this discussion paper and we'll have to move forward and again this is going to require Congressional Authority in terms of determining whether we could do something and offer a cbdc costlessly another nuts and Bolt's question Traditional Bank deposits pay interest would CB CD accounts pay interest if they would pay interest how would that interest rate be determined right that's another critical issue in the development of a cbdc and one that we will be addressing in the discussion paper and looking for public feedback now the Chinese cbdc the white paper they released uh two weeks ago said that this is the equivalent of currency and currency pays no interest so the Chinese have no intent to pay interest on their cbdc accounts so that's the first major country that's introducing a cbdc and they're not going to do it could they change and do it later sure could we do it possibly um but again these are design features that we would have to do and we would have to get Congressional Authority again we had to get Congressional Authority to pay interest on reserves for banks we were not allowed to just do that on our own so again if we were to pay interest on accounts we would have to probably get Congressional authority to do so another another kind of nson bolts question but one that has implications for for monetary policy this would expand uh adopting a digital currency would expand the liability side of the fed's balance sheet what are the implications uh of that for the asset side of the balance sheet how the FED manage that now there shouldn't be any implications for the size of the balance sheet because what would happen is if you were a household and you opened up a cbdc account you would say transfer $10 from your bank account to your cbdc account what would happen was reserves from the banking system would go down by $10 that's one of our liabilities and now the liability from the cbdc would go up by 10 so all you're doing doing with the cbdc is changing the composition of your liabilities you're not changing the size of the balance sheet you're not changing the asset size of our balance she you're just changing the composition of our liabilities a similar thing happens with our treasury uh general account the treasury holds funds in this account to make payments when they make a payment that liability goes down by say $10 the funds go into the banking system reserves go up by $10 so these are all just movements on the liability SES they don't have any implications for the uh total size or the asset composition of our balance sheet but I think one of the one of the hopes is that this would draw more people into the banking system uh and and that it would you know make it easier to to to Eng I'm sorry it would draw more people from unbaked status into holding accounts with the FED uh that holding accounts with the FED would be easier in many ways than holding accounts uh with commercial Banks and so that seems to be like it like it might have some uh some implications for for the balance sheet am I am I thinking about it wrong well in order to if they weren't in the banking system they and they wanted to open a cbdc account they'd have to give us currency right because they don't have a bank account so you'd have to walk in with your $10 bill somehow and say Here's my $10 bill I'd like $10 in my cbdc account and again all that is is the currency would come out that reduces that liability on our balance sheet and the cbdc would go up so even the unbanked kind of trying to come in from outside the Commercial Banking they have to give us something to put in their account we just don't say h guess what here's 10 bucks free on us that doesn't happen yeah so I mean the critical thing as I addressed in the speech is that in the US we are a highly highly banked economy like I said 95% of US Health households have bank accounts already and the 5% that don't don't seem to want a bank account now there's a variety of reasons that the unbank don't want bank accounts they like cash They Don't Trust Banks if they don't trust Banks it's not clear why they would necessarily trust the Federal Reserve even though they should but I mean these are kind of the questions why the unbanked don't have bank accounts and most of them don't want them is kind of the problem so to say we're going to give you a cbdc account they say no thanks you're not really solving any problems about financial inclusion at that point and financial inclusion is you know one of the one of the big motivating reasons uh why people who support digital currency would like to see the US adopt one you alluded a little bit to this in the speech but can you say more about how uh the US you know broadly might increase uh Financial inclusion if not through a digital currency what what are what are some other ideas to try uh bring people into the financial system yeah so the the question is if you have like I was saying if you have 1% of the population that really is unbanked and would like a bank account or a cbdc account is there a cheaper more efficient way of providing him with financial services and there's actually a project the bankon project that is uh being uh developed and run by all large number of banks in the US to provide lowcost finan Cal services to the unbanked so in that's that's a case in which the private sector is already working on providing Financial inclusion at a low cost to people so again if the private sector's already got a program up and running that's fairly widespread across the US anybody can go check it out online then then you have cheaper alternatives and for the Federal Reserve to create this huge apparatus called a CBC DC to Reach This 1% so again I just think there are much cheaper ways to um Achieve Financial inclusion and I want Financial inclusion I'd like everybody I'm not going to force people if they don't want to but if they want to we can certainly find cheaper ways to get people into the financial system and the private sector is already working on that so kind of in keeping with that you know a lot of discussion you know Advocates of digital currency this would this would lower the costs of of coming into the to the financial system for people what would that do to the cost of borrowing funds if if this were significantly lower cost if a bunch of people said okay I'm going to stop using a commercial bank I'm going to start using my cbcd account that leaves commercial banks with fewer dollars to lend uh to people who need to borrow money I would think that that would increase the cost of of of of borrowing that doesn't really seem to be playing a large role in the debate about this I wonder if you you have any thoughts about that yeah so the banks and the the U process of lending taking deposits transferring in I mean the the the banks have other forms of funding besides just household bank accounts you know you could go into the commercial paper Market you could go to other sources you could issue Equity there's a lot of ways that Banks could raise funds to offset some of their depositing flows I mean the critical thing is if they compete the whole idea is if they compete then the funds don't flow out so it could be the case that the just the existence of the cbdc causes fees to go down deposits to go up deposit rates to go up but nothing actually flows out because people are indifferent between leaving their bank and going to the FED now that fees have fallen or interest rates have Push been pushed up will that affect margins profit margins at the banks absolutely but that's what competition does I have no problem with competition reducing margins there there's concern I think among some people about some of the private sector Innovations um in uh uh payments and you mentioned stable coins uh maybe you could say a little more about the kind of pros and cons of stable coins Visa uh a digital currency I think a lot of people think to themselves you know if this is the direction that that payments are moving I would really just much rather have the FED be doing this than have than have private sector actors uh doing it especially with Rising concerns about crypto cryptocurrencies and and and uh things of that nature maybe I know you touched on that at your speech but but maybe you could speak a little more to that well if you think about what a Commercial Bank does today it's very similar to a stable coin it basically says you give me a dollar of US currency I will give you this claim on me that's equivalent to issuing a stable coin at One forone exchange rate and then you can use the stable coin to go make payments just like you can do that with your bank account the big difference is banks are highly regulated their balance sheets are monitored very closely to make sure that they're safe and there's uh enough Capital to make sure the bank is not going to be in trouble we have Federal Deposit Insurance to Ure that if a problem happens at the bank the customer still gets paid off so despite the fact that a stable coin looks like a bank account it's not a bank account it doesn't have insurance it's not clear that the stable coin issuer is going to honor that one toone exchange rate in a run if a run were to occur it's not clear that they're fully backed by safe liquid assets this is what we re recently realized with tether they claim to be fully backed by safe liquid assets a lot of it's commercial paper and it's not clear whether it's us commercial paper foreign commercial paper so we've saw in the financial crisis we saw money market funds that were fully backed with safe liquid assets have a run on them and they didn't hold up so just because the stable coins claim this they haven't yet proven that they could handle a runlike situation now that's not saying they can't you know if if these stable coins pegged to the dollar had very transparent balance sheets to Regulators showing that they were holding you know one to three month US government securities as their collateral which you can easily liquidate even in a panic then what's the problem I don't see a problem with the stable coins but until they get to that point uh they propose a lot of concerns at the end of the they still have to develop a network to be a serious payment instrument you know you'd have to make sure that us companies are willing to accept this stable coin as payment that's a big that's a big problem in any network model you've got to build that Network and if you can't build it it really isn't a major threat to the banks um say a little more about China why why do you think China is uh leading on this do you see a longer term strategy here and what are the implications of that for for the FED yeah I've always been a little mystified by this I think people have a some sort of idea that the Chinese were going to develop a digital kind of bare instrument token similar to a Bitcoin type object and and that's not what they developed what they developed was a bank account at the People's Bank of China it you can make payments through that's it I mean that's that's all it is so you have to ask if you were a US company why would you ever open up a bank account at the Central Bank of China which then monitors every financial transaction you do globally I I just don't see us firms saying that's a great idea let's do that I don't see non-chinese firms saying wow that's a great idea too I'd like to have the Chinese government monitor every transaction I make now not Chinese companies May have no choice but that's that's not an issue about uh being a threat to the US dollar as a global Reserve currency so I think the SE uh China has other reasons for financial information they may not view private sector competition the way that the US does which is typically the government steps out of the way and we let the private sector compete China doesn't necessarily do that they're not a truly capitalistic system like ours so I you know they can do what they want for their internal politics or internal policies you know they're free to do what they want but I don't view it in in any serious way as a threat to the US dollar so you uh mentioned several times that uh Congress would really need to be involved If the Fed were going to move forward uh with this do you want to say more about about that about what you think congress's uh appetite for this would be or or what your read on that sit situation is what type of legislation might be needed you know those sorts of issues yeah I mean I think like I said there's a really important parts of us doing this that really do require Congressional approval um like I said cost recovery is a critical thing do we or don't we have to do it that's that's congress's decision to make not ours um interest on these accounts that's a that's a decision for Congress to make not us we had to get Authority from Congress to do it for Bank Reserves so it seems to me logical you would need Congressional authority to do anything like that if you were to construct it just the fact that this is a type of payment instrument that is being created I think we need congress's input and this is just to make sure that the FED is doing its job staying in its Lane doing what it's supposed to do with Congressional Authority I mean to me that's that's critically important not to go outside the bounds of doing things that Congress may or may not like now from Congress there's various bills have been introduced a lot of it is because they want Financial inclusion uh there's also concerns about the reserve currency and National Security aspects to it I mean this is these are issues for congress I'm not necessarily convinced by these arguments but if Congress were to say we want you to do this then we'll do it so a lot of the discussion about about digital currencies has uh kind of assumed you know a normal environment right an environment of healthy economic growth an environment of normal functioning of the of the financial system let's let's uh discuss what might be the implications of of the existence of a CB uh DC in in a period of of financial stress if we were to have another kind of financial crisis uh similar to' 08 even if even if it wasn't that sever would having a digital currency exacerbate that problem would it help alleviate that problem what are your views on that yeah there's been a lot of discussion that by having this um super safe asset that in a run people would move out of their bank accounts into the that account I'm you know the fact that bank accounts are fully federally insured fully protected I don't see we haven't had a bank run and Retail Bank Run in this country in 80 years so you know I don't see the threat the banks will be suddenly disintermediated and then people will move all their money into a central bank account they're protected either way you're going to get your dollar either way so there's really no reason to to make this rapid disin disintermediation now you could get it out of stable coins but then in my my view the money is going to go into your bank account if you're in a if you're not trusting a stable coin you're going to move it into your bank account not into your cbdc account so I don't see any real advantage of a cbdc in uh creating a a a potential bank run it could I'm not saying it couldn't but you're just dis intermediating banks in a run is we haven't had that happen in years people are feel comfortable leaving their funds in commercial Banks it's the shadow banking industry that has experienced runs not not the retail banking industry and that's because they don't have all the protections on their accounts Deposit Insurance highly regulated checking their asset and balance sheets All the Time by The Regulators uh that's why people trust their bank accounts but they may not trust of a something like a stable coin in a financial panic would it have helped during the pandemic would it have helped get cash to people and businesses uh faster and more efficiently you know I I kept hearing this but if you you know 95% of households already had a bank account so those payments went out very very rapidly so the 5% or so that didn't have bank accounts they were the ones that was hard to get the funds to but again if they don't have a bank account it's not clear they would have a central Bank digital currency account so it's not clear that the cbdc is going to get the money to them any faster you know we processed amazing amounts of money the Federal Reserve through the current payment system in a very short period of time and yes you had some some gaps but those gaps would still exist with the cbdc if you don't have information on those people to make a financial transfer it doesn't matter whether you have a cbdc or not you would have to have the financial information for those people to be able to do it let me ask a question uh from the audience what is your view on the potential usefulness of a CB DC that is intended for the purpose of crossborder payments yeah so that's the thing crossb payments are not nearly as efficient as domestic payments there's a lot of work being done by the international banking Community to do that once again competition from alternative private sector payment uh firms should drive those costs down again I think stable coins a well-regulated stable coin could easily do that um but you know there is a you know I guess there is a way in which if all central banks in the world had cbdc you could do your cross payments by going through the central bank to another Central Bank to you or the foreign citizen you're trying to transfer to but actually you can do wire transfers with Western Union right now very cheaply with only Western Union in between you don't need two central banks clearing payments to get it to you so we already have relatively some relatively cheap International payments for remittances so it's not clear you have to have this just to make international payments cheaper I think that's coming from the private sector let me ask another do you see any value in cbdc to deter and detect Financial crimes better than existing anti-money laundering methods n anybody that's trying to money launder do illegal I doubt they're going to do it through their cbdc account right that's what I said you know they're not going to use a cbdc instead of Bitcoin I can't imagine that ransomware uh Pirates would suddenly start asking to be paid in cbdc from the Federal Reserve it's too easy to be tracked in what you're doing and where it is yeah um the kind of broader landscape right you're seeing a lot of innovation uh you're seeing coins you're seeing other fintech Innovations you're seeing other central banks moving in this direction just kind of generally speaking is there is there a risk of the fed you know being behind the ball here and and not being able to help kind of structure these Innovations uh maybe the FED doesn't see the value in in in actively participating in them but you know is that kind of seaing leadership to other central banks to other private sector actors and if so is that problematic yeah as I was saying that you know we really encourage uh you know responsible Financial innovation matching the risk that's involved we don't want to hinder that we want to let that occur and there's there is fascinating stuff going on that I never would have dreamed of five to 10 years ago with decentralized Finance crypto assets I mean these things were pipe dreams five and 10 years ago but now they're reality but that's my point these Innovations have happened faster than regulator's ability to keep up understand and think about how they need to be regulated we're getting there we're starting to do that uh and then once we do that I think the crypto and defi communities will want to be part of this regulatory structure so they have a broader access and more use so I think this is all very promising going forward and I I just don't think we need a cbdc to allow private sector Innovation or to keep things under control this this is all happening and if all we need to do is get the regulatory aspect under control get to all the participants to want to be part of that environment and then things will take off and go on their own uh a final question about this then I want to ask about uh the economic Outlook just to just to kind of summarize what do you think are the biggest risks of the FED moving forward with a digital currency and what do you think would be the biggest benefits to the US economy of the FED doing so of a cbdc y yeah I mean I think the the one of one of the things that definitely concerns me as a as a Federal Reserve governor in doing a cbdc is just the Cyber risk I mean we've W we've been watching for the last couple of years the risk of attacks on systems and that we want to open ourselves up to this kind of extreme cyber security risk and a cbdc would be a very tempting Target you know whatever payment systems that are being constructed if we were to do what's called a direct access cbdc where you come straight to us you don't go through an intermediary the fed's got to have this kind of cyber security we look like a big Target in my mind and is it really the benefits of this worth the potential downside of what could happen in cyber security so that's that's my biggest concern on the downside on the upside like I said I I I've sat here and tried to think what is the big advantage of having a cbdc and I'm just struggling to see what it is our payment system works very well relatively efficient faster payments are coming cheaper payments are coming and a lot of this is driven by private sector competition Innovation that's the way I think we should go not a heavy-handed bureaucratic we've got to take control of all this stuff uh excellent now let me uh ask you about the outlook for the economy there's a great deal of concern about uh Rising consumer prices there's a debate about whether or not those price increases uh should be thought of as as transient factors or whether they might develop into into more persistent uh uh price increases there's questions about the timing of uh of the withdrawal of monetary policy support um what what are your views on on on the economic and policy Outlook well I've said on many occasions that I have a very optimistic outlook for the US economy coming out of this uh pandemic this is very different than any other recession we saw it was extremely sharp deep but ended quickly as the NBR recently did on dating and we have recovered so much faster I think there were there have been way too many fears that the recovery we saw after the financial crisis is what was going to happen this time and that just hasn't happened the economy's rebounded in an amazing way and I think that's going to continue I have very high hopes for very high jobs reports coming out tomorrow in the following month I think the labor Market's going to rebound it already has we lost 22 million jobs two million of that was early retirements so you really lost 20 million in terms of people that would come back and we've already recovered 15 if we get another million in tomorrow's report say close to a million in the September report you've recovered 85% of the jobs in the US that were lost in 18 months it took us seven years to do that coming out of 2009 so this is a very rapid very progress you know a very rapidly progressing economy in labor market and I think that it's just going to do well in the next six to 18 months so my Outlook is very much that the economy is going to recover we will be able to potentially pull back on our accommodative monetary policy potentially sooner than uh Others May think on inflation uh my base case is that the inflation we're saying is somewhat transitory that there will be some you know relief in the fourth quarter of this year on price pressures but anecdotally I'm getting concerned from business contacts telling me that they have no problems passing costs through to final goods prices consumers are doing it the firms are have Mar pricing power for the first time in a decade and they intend to use it and that's what concerns me that maybe once firms get this pricing power and consumers get into a mentality of ah it's there's nothing I can do if I go to that firm they're going to tell me the same thing as the other firm so I'm not going to search around for cheaper Goods then you can get into a bad Dynamic on prices where things are not just transitory and don't pull back later but that's not my base case my base case is inflation will pull back inflation expectations seem to be anchored so the markets are take believing in the same story but it is an upside risk that inflation could last long and be higher than we all thought it would be uh six months ago well govern thank you very much for uh speaking here at AI today thank you for your for your speech and for and for taking some questions the uh debate over digital currency is important um and there is a lot of heat and not enough light and I think this conversation has has helped to illuminate the issue and also uh helped uh uh to uh better understand your views on on on on this important this important debate thank you everyone for joining us uh thanks to everyone who will watch the live stream at their convenience in the future and I hope everyone has a pleasant afternoon thank you all right thank you Michael thank you everyone