Central Bank Digital Currencies

Central Bank Digital Currencies

Central Bank Digital Currencies

Updated December 3, 2025 (IF11471)

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, Central Bank Digital Currencies: Policy Issues.

Background

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.

Within the mainstream financial system, digital payments are already widespread in the United States. At present, digital payments are not always as fast, inexpensive, or ubiquitous as some would desire. A CBDC would presumably allow for real-time payments (i.e., instant settlement). Real-time payments are growing rapidly but are not yet ubiquitous in the United States. Their growth has accelerated since the introduction of FedNow, the Fed's real-time settlement system, in 2023. By contrast, developing a CBDC would take several years of significant information technology investment and testing.

Federal Reserve and Executive Actions

In January 2022, the Fed released a report on CBDC, which it defined as "a digital liability of a central bank that is widely available to the general public." In the Fed's view, "CBDC transactions would need to be final and completed in real time, allowing users to make payments to one another using a risk-free asset. Individuals, businesses, and governments could potentially use a CBDC to make basic purchases of goods and services or pay bills, and governments could use a CBDC to collect taxes or make benefit payments directly to citizens."

The report identified four characteristics that it argued were necessary "to best serve the needs of the United States," saying that a CBDC should be (1) privacy-protected to the extent compatible with deterring criminal use, (2) intermediated (i.e., retail services would be offered through financial institutions), (3) widely transferable among holders, and (4) identity-verified (i.e., not anonymous). The report took no position on several design features, such as whether the CBDC should pay interest, whether it should be available for use offline, and whether there should be size limits on transactions or holdings. The report stated that the Fed "does not intend to proceed with issuance of a CBDC without clear support from the executive branch and from Congress, ideally in the form of a specific authorizing law." The report "is not intended to advance a specific policy outcome and takes no position on the ultimate desirability of a U.S. CBDC." The Fed has also participated in pilot programs (Projects Hamilton, Cedar, and Agora) to build technical capacity pending a decision to adopt a CBDC.

In March 2022, President Biden issued Executive Order 14067 on digital assets, which stated that the U.S. government "should prioritize timely assessments of potential benefits and risks [of a U.S. CBDC] under various designs to ensure that the United States remains a leader in the international financial system." Pursuant to that order, Treasury, in consultation with various agencies, issued a report on CBDC in September 2022. That report did not take a position on whether to pursue a CBDC. In January 2025, President Trump issued Executive Order 14178 on digital financial technology. The order stated that agencies are prohibited from "undertaking any action to establish, issue, or promote a CBDC" and should "terminate any plans or initiatives related to the creation of a CBDC."

Design Considerations

A CBDC would allow holders to store value and make payments digitally and would be backed by the Fed (as is the case for physical currency), but other features are unresolved. Crypto generally records transfers on public, decentralized (or distributed) ledgers stored using blockchain technology. Often individuals' accounts are cryptographically protected and pseudonymous. (For background, see CRS Report R47425, Cryptocurrency: Selected Policy Issues.) It is unclear which of these features would be desirable in a CBDC or whether a CBDC might be built upon existing payment systems instead.

From an end-user perspective, CBDC proposals range from a payment system similar to the status quo to one that is fundamentally different. At one end of the spectrum of proposals, a CBDC accessible only to banks may differ only slightly from the current system given that wholesale payment systems are already digital. At the other end, proposals for consumers to be able to hold CBDCs in accounts at the Fed would fundamentally change the role of the Fed and its relationship with consumers and banks. The Fed's report envisioned a middle ground where end users would access CBDC and related services through financial institutions. Thus, depending on its attributes, a domestic CBDC could potentially compete with crypto (notably stablecoins), foreign CBDCs, private payment platforms, or banks. CBDC proponents differ as to which of these they would like it to compete with. CBDCs are more likely to compete with crypto as a payment means for legal commerce than their other current uses (e.g., as speculative investments or as payment means for illicit activities).

International CBDC Initiatives

According to the Atlantic Council, 134 jurisdictions around the world were researching, piloting, or launching CBDCs as of July 2025. The Bahamas, Jamaica, and Nigeria have formally launched CBDCs. No major economy has formally launched a CBDC. China's CBDC (e-CNY), while still technically in the pilot stage, is the furthest advanced. Its consumers have collectively created 2.25 billion digital wallets to transact in the e-CNY. China also participates in a cross-border CBDC pilot (called mBridge). Several central banks in advanced economies are also researching and piloting CBDCs. For example, the European Central Bank is in a two-year preparation phase for a digital euro, the Bank of England is considering developing a digital pound, and the Swiss National Bank has launched a wholesale CBDC pilot project. The Bank for International Settlements (an international organization of central banks) is working with multiple countries on CBDC research projects and cross-border pilots.

Central banks around the world are interested in CBDCs for a variety of reasons, including greater control of the economy, stronger surveillance of financial transactions, consumer preferences for digital payments, increasing access to financial products for underbanked populations, and enhancing payments efficiency. Countries such as China, Iran, Russia, and Venezuela also view CBDCs as a way to reduce reliance on the dollar and vulnerability to U.S. sanctions.

Issues for Congress

In the United States, unlike some other countries that are considering CBDCs, the existing payment system features trusted methods for digitally delivering funds, with growing use of real-time payments. Whether a CBDC would achieve equivalent or better performance at lower cost remains unknowable until detailed proposals have been released. Federal Reserve Governor Christopher Waller has called CBDCs "a solution in search of a problem." Using CBDCs for cross-border payments has been identified as offering greater potential gains in cost and speed, but it raises more legal and practical challenges than domestic use does.

A major policy consideration is the extent to which a CBDC would displace private activity. If available to consumers, CBDCs might partially displace stablecoins and maintain government's central role in issuing money—whether this is desirable depends largely on an individual's view of those currencies. In the more expansive vision for CBDCs, anyone could hold CBDCs in a Fed account for, at a minimum, making payments or storing value. This would mark a fundamental shift in the Fed's role—the Fed does not provide retail services to the public currently—and would have the potential to displace private payment systems and banks, which could affect the availability of credit to households and businesses. From a typical economic perspective, government provision of private goods is desirable only if there is a market failure or the service has the characteristics of a public good. It is unclear whether the U.S. payment or banking systems suffer from market failures that a CBDC could address, although a CBDC could be viewed as an extension of public money (e.g., U.S. currency), which is a public good.

Some proponents believe a CBDC could promote financial inclusion, but that would depend largely on whether the CBDC would be less expensive and easier to access than banking services. (Under current law, the Fed would have to provide the CBDC at cost.) However, a CBDC could also harm underserved populations if it led to reduced acceptance of less costly payment options, such as cash.

Some proponents claim that, because bank runs pose systemic risk, any shift from private bank accounts to CBDC would increase financial stability. In contrast, others assert CBDC could make bank runs more likely by offering an alternative to bank accounts that people could shift their savings to during times of bank distress. Stablecoins could also be prone to runs that pose systemic risk, unlike a CBDC. Cyberattacks also pose systemic risk, and it is unclear whether a CBDC would make the financial system more or less resilient to them.

A CBDC that provided complete anonymity would seemingly be incompatible with current policies designed to curb money laundering and other illicit activities. Thus, it may be necessary to store information about CBDC users and their transactions. This would reduce individuals' privacy but might be more effective at preventing illicit activity. Dealing with privacy implications and technical challenges in rolling out new technology would expose the Fed to reputational risk, which could harm its credibility. Proponents also argue that a CBDC would improve the effectiveness of monetary policy because it could transmit interest rate changes directly to consumers—including, potentially, negative interest rates if CBDCs displaced cash.

CBDC initiatives in other countries could have implications for the United States. For example, some Members of Congress have expressed concerns that, if a major central bank successfully develops a CBDC that can be used for cross-border transactions, the use of the U.S. dollar globally could decline, challenging the status of the U.S. dollar as the world's dominant reserve currency and potentially making it easier to skirt U.S. financial sanctions.

If it desires, Congress could hasten or prohibit the adoption of a CBDC—or set parameters around adoption—through legislation. In the 119th Congress, the House passed legislation (on a standalone basis [H.R. 1919], as part of a broader crypto regulatory bill [H.R. 3633], and as part of the National Defense Authorization Act [Title LI of H.R. 3838]) that would prohibit the Fed from issuing a CBDC or offering products, services, or accounts to individuals.