Fed outlines pros and cons of a US 'digital dollar' -- but avoids taking a stand (for now)

 Curious about central bank digital currencies? Here's the latest, plus everything else you need to know about CBDCs.

Bitcoin was invented, at least in part, to circumvent governments and national currencies. In the original white paper, released in the wake of the 2008 financial crisis, Satoshi Nakamoto expressed a desire to create "a new electronic cash system" that was "completely decentralized with no server or central authority." 

But as cryptocurrencies gain in popularity, grabbing an increasing share of the global financial pie, governments have taken notice, and now many of them are exploring how to get a piece of the action. One possibility is what's known as a CBDC, or a central bank digital currency.

On Thursday, the Federal Reserve took a major step forward towards taking CBDCs seriously in the US, releasing a long-awaited report that examines the potential benefits and risks of CBDCs.

 This so-called digital dollar would incorporate elements of decentralized cryptocurrencies, like bitcoin, but with a major difference: It's issued and regulated by the country's financial authority.

And the US isn't alone. There are dozens of countries engaged in some stage of researching CBDCs, according to Kristalina Georgieva, managing director at the International Monetary Fund. 

But CBDCs are complex. They offer some potential benefits (providing financial resources to underbanked populations, for example) and potential drawbacks (including significant privacy concerns). 

For now, here's an introduction to some of the basics, as well as an overview of which countries are working on CBDCs and some clues about how a central bank digital currency might work in practice. 

It's the virtual form of a fiat currency -- that is, government-issued money that isn't backed by other commodities like gold or silver. In short, a CBDC is just the digital form of a country's official currency. 

As nothing more than a computer code, these currencies could be stored on central ledgers within a country's national bank or on a distributed ledger the way private cryptocurrencies like bitcoin are.

The rise of cryptocurrencies is serving as a wake-up call to national governments, which have long held a monopoly on currency issuance.




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