The American Federal Reserve doubts the feasibility of developing and launching a digital dollar, since a state-owned stablecoin may lose out to existing alternatives, in particular, the Fednow instant payment system.

Federal Reserve Board member Michelle Bowman said the case for a central bank digital currency (CBDC) remains unconvincing. Proponents of government stablecoins argue that CBDCs could expand people’s access to banking services. However, according to Bowman, advocates of the digital dollar have failed to clearly explain how it can solve the problems of the financial sector more effectively than existing innovative solutions.

Bowman cited the example of Fednow, an instant payment system created to improve payment infrastructure. The Fed official believes that, unlike Fednow, CBDC carries significant risks. If the digital dollar is not developed properly, it will negatively impact commercial banks that act as intermediaries between customers and the government. As a result, both businesses and people will suffer, the council member fears.

“I have yet to see a compelling argument that CBDC can solve any problem better than any other payment solution. Or with less risk of loss for consumers and the economy. The potential benefits of a digital dollar remain unclear,” Bowman said.

One of the main risks is the problem of transaction confidentiality. In September, fifty American legislators, led by Republican Tom Emmer, introduced an updated bill that would prohibit the Fed from launching a digital dollar. Therefore, Michelle Bowman believes it is necessary to conduct additional research on CBDC and monitor the developments of other central banks.

However, Fed Vice Chairman Lael Brainard considers it right to accelerate the launch of a state digital currency, as this could strengthen the position of the US dollar against the backdrop of the development of similar projects by other central banks.