Rebecca M. Nelson
Policymakers have debated whether the Federal Reserve (Fed) should create a central bank digital currency (CBDC)—a “digital dollar.” A CBDC would share some of the features of cryptocurrencies (crypto)—that is, private digital currencies, such as Bitcoin, which are unsupported by any government authority. This In Focus describes how foreign central banks, the Administration, Congress, and the Fed are approaching the issue and discusses policy issues. For more detail, see CRS Report R46850,
Contrary to some of its creators’ expectations, crypto has not become widely adopted for payments—its value has been too volatile to serve as an effective means of payment, transaction costs are too high, and it is neither legal tender nor backed by the “full faith and credit” of a government. Stablecoins, a type of cryptocurrency intended to keep a constant value, were introduced to overcome the volatility issue but have also not been widely adopted for retail payments. (P.L. 119-27 was recently enacted to encourage further adoption of stablecoins.) A CBDC, proponents believe, could overcome these barriers while taking advantage of the technology pioneered by crypto to create a more efficient, central-bank-backed digital payment system.
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