The U.S. Federal Reserve System’s board of governors recently released a research paper highlighting what it perceives as the pros and cons of developing and issuing a central bank digital currency (CBDC) to keep up with unnamed foreign powers.

As Cointelegraph reported back in 2021, U.S. Federal Reserve chair Jerome Powell has stated that the development of a U.S. CBDC is a “very high priority” for the government.

CBDCs are digital currencies that are controlled by the government issuing them. Proponents argue that the issuance of a U.S. CBDC will shore up the dollar’s position as the de facto international currency.

Detractors, on the other hand, insist that a CBDC will open the doors for centralization, invasion of privacy, and the ability for U.S. authorities to freeze assets at any time.

In the Fed’s recent paper, a pair of senior economic analysts examined the potential implications of a U.S. CBDC on the dollar and its role in international payments.

“Over 90% of central banks are exploring CBDCS,” write the researchers, adding that the Fed is also exploring “the implications of, and options for, introducing a CBDC.”

Keeping the dollar competitive

The researchers appear to focus a majority of their concern on whether the dollar can compete with foreign CBDCs if the U.S. doesn’t issue their own.

According to the paper, there’s little fear that the U.S. dollar’s position as a “unit of account” or “a store of value” will be affected by the advent of a “large and stable foreign CBDC” outside of the U.S. jurisdiction.

However, the researchers go on to state that the dollar could lose ground as the global go-to for international transactions:

“Depending on other CBDCs’ (or foreign currency-denominated stablecoins’) design features, there is some potential for the erosion of the dollar’s role as medium of exchange if a U.S. CBDC is not issued or has unattractive design features.”

Politics and polling

CBDC’s have been a contentious point of disagreement among many U.S. politicians. U.S. 2024 presidential candidate and former president Donald Trump has sworn that, if he’s elected, he’ll defeat any measures to produce a CBDC while he’s in office.

Meanwhile, a group of five U.S. senators recently proposed a bill that would effectively ban CBDCs in the country. A poll taken in May of 2023 showed that only 16% of those surveyed in the U.S. would support a CBDC.