As central banks around the world experiment with the potential new form of money, the Federal Reserve plans to undertake a review of the potential benefits and hazards of releasing a US digital currency as early as this week.

Fed officials are divided on the issue, making it doubtful that they will make a decision on whether to develop a digital dollar anytime soon. Unlike private cryptocurrencies such as bitcoin, a Fed version would be created and backed by the United States central bank, which is a government organisation, just like paper dollar bills and coins.

According to supporters, a Fed digital currency might make it faster and cheaper to move money around the financial system, attract those who do not have bank accounts, and provide an efficient means for the government to deliver financial aid.

Another motivating factor is keeping up with other large jurisdictions adopting a digital currency for domestic and international payments, according to Fed. Gov. Lael Brainard in remarks to the National Association for Business Economics on September 27.

“It’s just very hard for me to imagine that the US, given the status of the dollar as a dominant currency in international payments, wouldn’t come to the table in that circumstance with a similar kind of an offering,” she said.

Fed Chairman Jerome Powell, on the other hand, has hinted that there is cause to be cautious. Last month, he stated that it is more vital to get the digital dollar right than to be the first to market, owing to the dollar's critical worldwide position.

He and other Fed officials have stated that the Fed's research is preliminary and exploratory in nature. At a news conference on September 22, he stated that they would only contemplate issuing a so-called central bank digital currency, or CBDC, if they considered there would be "clear and real benefits that outweigh any costs and dangers."