Frequently Asked Questions
1. What is a central bank digital currency (CBDC)?
A CBDC is a digital form of central bank money that is widely available to the general public.
"Central bank money" refers to money that is a liability of the central bank. In the United States, there are currently two types of central bank money: physical currency issued by the Federal Reserve and digital balances held by commercial banks at the Federal Reserve.
While Americans have long held money predominantly in digital form—for example in bank accounts, payment apps or through online transactions—a CBDC would differ from existing digital money available to the general public because a CBDC would be a liability of the Federal Reserve, not of a commercial bank.
2. Will a U.S. CBDC replace cash or paper currency?
The Federal Reserve is committed to ensuring the continued safety and availability of cash and is considering a CBDC as a means to expand safe payment options, not to reduce or replace them.
3. Has the Federal Reserve decided to create a CBDC?
The Federal Reserve issued Money and Payments: The U.S. Dollar in the Age of Digital Transformation as a first step in fostering a broad and transparent public dialogue about CBDCs in general, and about the potential benefits and risks of a U.S. CBDC. The paper is not intended to advance any specific policy outcome and no decisions have been made at this time. The Federal Reserve has made no decision on issuing a central bank digital currency (CBDC) and would only proceed with the issuance of a CBDC with an authorizing law. Testifying before the House Financial Services Committee in March 2023, Chair Powell said a central bank digital currency is, “something we would certainly need Congressional approval for.”
4. Why is the Federal Reserve considering a CBDC now?
The Federal Reserve is charged with promoting monetary and financial stability and the safety and efficiency of the payment system and is studying how a CBDC could improve on an already safe and efficient U.S. domestic payments system.
With technological advances ushering in a wave of new private-sector financial products and services, including digital wallets, mobile payment apps, and new digital assets such as cryptocurrencies and stablecoins, the Federal Reserve and other central banks around the globe are exploring the potential benefits and risks of issuing a CBDC.
5. What are the potential benefits of a CBDC?
A CBDC could potentially offer a range of benefits. For example, it could provide households and businesses a convenient, electronic form of central bank money, with the safety and liquidity that would entail; give entrepreneurs a platform on which to create new financial products and services; support faster and cheaper payments (including cross-border payments); and expand consumer access to the financial system.
6. What are the risks of a CBDC?
A CBDC could pose certain risks and raise a variety of important policy questions, including how it might affect financial-sector market structure, the cost and availability of credit, the safety and stability of the financial system, and the efficacy of monetary policy.
7. What principles will guide the Federal Reserve's consideration of a CBDC?
Any U.S. CBDC should, among other things:
- provide benefits to households, businesses, and the overall economy that exceed any costs and risks;
- yield such benefits more effectively than alternative methods;
- complement, rather than replace, current forms of money and methods for providing financial services;
- protect consumer privacy;
- protect against criminal activity; and have broad support from key stakeholders.
8. Would a CBDC protect my privacy?
Any CBDC would need to strike an appropriate balance between safeguarding the privacy rights of consumers and affording the transparency necessary to deter criminal activity.
Protecting consumer privacy is critical. As noted in Money and Payments: The U.S. Dollar in the Age of Digital Transformation, analysis to date suggests that a potential CBDC should be intermediated. Under an intermediated model, the private sector would offer accounts or digital wallets to facilitate the management of CBDC holdings and payments. An intermediated model would facilitate the use of the private sector's existing privacy and identity-management frameworks.
Financial institutions in the United States are subject to robust rules that are designed to combat money laundering and the financing of terrorism. A CBDC would need to be designed to comply with these rules. In practice, this would mean that a CBDC intermediary would need to verify the identity of a person accessing CBDC, just as banks and other financial institutions currently verify the identities of their customers.
9. How can I learn more about CBDC or comment on the paper?
Reading Money and Payments: The U.S. Dollar in the Age of Digital Transformation is a good place to start. This paper concludes with a request for public comment, the first step in a broad consultation that will also include targeted outreach and public forums. The CBDC comment period has ended. You can submit any additional questions about CBDC through the Board's Contact Us form.
10. What are the Federal Reserve's ongoing technological initiatives related to CBDC?
The Federal Reserve is engaged in a number of experiments related to digital currencies, including a hypothetical CBDC. These experiments enrich the Federal Reserve's policy discussions related to digital currency by giving experimenters hands-on experience with the technology's opportunities and limitations. Examples include a multiyear exploratory research project (Project Hamilton) conducted by the Federal Reserve Bank of Boston in collaboration with MIT's Digital Currency Initiative to investigate the technical feasibility of a general purpose CBDC that could be used by an economy the size of the United States, an Innovation Center at the Federal Reserve Bank of New York to facilitate collaboration with the Bank for International Settlements on a number of financial innovations, and a Technology Lab at the Board of Governors that has several CBDC experiments under way.