for release on delivery 1 : 00 p. m. edt april 18, 2023 considerations for a central bank digital currency remarks by michelle w. bowman member board of governors of the federal reserve system at the georgetown university mcdonough school of business psaros center for financial markets and policy washington, dc april 18, 2023 it is a pleasure to be with you today to discuss the evolving money and payments landscape in the united states, which is a topic of primary importance to the federal reserve. technological innovation has changed this landscape in recent years, as we have seen the emergence of new financial services entrants offering payments services, new platforms designed to increase the speed of payments, clearing, and settlement, and new forms of digital money. over the past several years, and as a direct result of these developments, we have seen a significant increase in attention on central bank digital currencies ( cbdcs ) from central banks around the world in addition to a great deal of international and domestic engagement on cbdc. a number of central banks have taken steps to begin exploring the potential uses of a cbdc in their home countries. a very small number have adopted a cbdc for their local jurisdictions. and of course, discussions of the purpose, design, and potential risks of a u. s. cbdc, and technical research about key design elements, continue here in the united states. while the federal reserve plays an important role in these ongoing discussions and technical research, the fed would not implement a u. s. cbdc without the approval of congress. in broad terms, a cbdc is simply a new form of digital liability of a central bank. because it is issued by a central bank, cbdc is typically thought of as being denominated in the currency of that central bank. one could imagine a digital u. s. dollar, a digital euro, or a digital pound. beyond this baseline definition though, “ what is a cbdc ” defies a simple definition. a cbdc built on distributed ledger technology offers a wide range of design and potential use options, as well as potential risks. this variability complicates any discussion of a cbdc simply because we may not be talking about the same thing. there are two threshold questions that a policymaker needs to ask before any decision to move forward with a cbdc. first, what problem is the policymaker trying to solve, and is a - 2cbdc a potential solution? second, what

repo platform, progress has been made in reducing the amount of intraday credit extended by the clearing banks in the course of the daily settlement process, and, as additional enhancements are made, the extension of such credit should be largely eliminated by the end of 2014. however, important risks remain in the short - term wholesale funding markets. one of the key risks is how the system would respond to the failure of a broker - dealer or other major borrower. the dodd - frank act has provided important additional tools to deal with this vulnerability, notably the provisions that facilitate an orderly resolution of a broker - dealer or a broker - dealer holding company whose imminent failure poses a systemic risk. but, as highlighted in the fsoc's most recent annual report, more work is needed to better prepare investors and other market participants to deal with the potential consequences of a default by a large participant in the repo market. 8 asset markets asset markets are a third area that we closely monitor. we follow developments in markets for a wide range of assets, including public and private fixed - income instruments, corporate equities, real estate, commodities, and structured credit products, among others. foreign as well as domestic markets receive close attention, as do global linkages, such as the effects of the ongoing european fiscal and banking problems on u. s. markets. not surprisingly, we try to identify unusual patterns in valuations, such as historically high or low ratios of prices to earnings in equity markets. we use a variety of models and methods ; for example, we use empirical models of default risk and risk premiums to analyze credit spreads in corporate bond markets. these assessments are complemented by other information, including measures of volumes, liquidity, and market functioning, as well as intelligence gleaned from market participants and outside analysts. in light of the current low interest rate environment, we are watching particularly closely for instances of “ reaching for yield ” and other forms of excessive risk - taking, which may affect asset prices and their relationships with fundamentals. it is worth emphasizing that looking for historically unusual patterns or relationships in asset prices can be useful even if you believe that asset markets are generally efficient in setting prices. for the purpose of safeguarding financial stability, we are less concerned about whether a given asset price is justified in some average sense than in the possibility of a sharp move. asset prices that are far from historically normal levels would seem to be more susceptible to such destabilizing moves.