There are also potential risks associated with a CBDC, and I will touch on those at the end of my remarks. But at this early juncture in the Fed’s discussions, I think the first order of business is to ask whether there is compelling need for the Fed to create a digital currency.
I am highly skeptical.2 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 CBDC solve? Alternatively, what market failure or inefficiency demands this specific intervention?