A central bank digital currency (CBDC) is a digital form of sovereign currency issued directly by a central bank — distinct from commercial bank deposits and cryptocurrency. The United States has been researching a potential “digital dollar” since 2020, but as of 2024–2025 has the most restrictive political environment of any major economy regarding CBDC development, with significant bipartisan opposition focused primarily on privacy concerns and fears of government financial surveillance.
What a US CBDC Would Be
A US CBDC (digital dollar) would be a direct liability of the Federal Reserve — like a Federal Reserve Note (physical cash) but in digital form. It would differ from:
- Bank deposits: Currently insured up to $250K (FDIC); a CBDC would be direct Fed liability with no cap
- Stablecoins (USDC, USDT): Private company-issued tokens; CBDCs are government-issued
- FedNow: An interbank settlement system (see below) — not a consumer-facing digital currency
Project Hamilton (2020–2022)
The Federal Reserve Bank of Boston, in partnership with MIT’s Digital Currency Initiative (co-led by former CFTC chair Gary Gensler), conducted Project Hamilton — technical research into what a US CBDC architecture could look like.
Hamilton findings (published Feb 2022):
- Demonstrated a system processing 1.7 million transactions per second (faster than Visa)
- Explored two architectures: centralized ledger and a more distributed model
- Concluded technical feasibility was not the limiting factor
Project Hamilton was research only — no recommendation to issue a CBDC was made.
FedNow (July 2023)
The Federal Reserve launched FedNow on July 20, 2023 — an instant payment rail for US banks allowing 24/7, 365-day real-time settlement in under 5 seconds. It is NOT a CBDC:
- Transactions settle in USD commercial bank balances
- No digital currency is issued
- Consumers don’t hold FedNow accounts — their bank does
However, FedNow was widely mischaracterized on social media as a government CBDC, fueling political opposition.
Political Landscape (2023–2024)
The US became the developed economy most hostile to CBDC development:
- March 2023: Florida Governor Ron DeSantis signed legislation banning CBDC as “legal tender” in Florida — the first US state ban
- CBDC Anti-Surveillance State Act (2023) — passed House Financial Services Committee; would prohibit the Fed from issuing a CBDC without explicit Congressional authorization
- Campaign issue: Both Trump and RFK Jr. made explicit anti-CBDC pledges in the 2024 election
- Executive Order (2025): The Trump administration issued an executive order in early 2025 explicitly prohibiting the development or piloting of a US CBDC
The primary concern cited by opponents: a retail CBDC gives the government unprecedented visibility into individual spending patterns and the ability to program money (e.g., expiration dates, spending restrictions).
Global Context
While the US retreated from CBDC, others advanced:
| Country | CBDC Status |
|---|---|
| China | Digital Yuan (e-CNY) — live since 2021, 180M+ wallets |
| ECB / Eurozone | Digital Euro — advanced stage pilot, targeting 2026+ |
| UK | “Britcoin” — consultation phase |
| India | Digital Rupee (e₹) — pilot since 2022 |
| Nigeria | eNaira — launched 2021, limited adoption |
Privacy Concerns
The most substantive arguments against retail CBDCs:
- A programmable CBDC could have spending restrictions (cannot be used for certain goods)
- Expiration dates could force spending (stimulus checks that expire)
- Full government visibility of transactions eliminates financial privacy equivalent to cash
- Government could freeze individual accounts without court process
Proponents argue these concerns could be addressed through privacy-preserving design (e.g., offline transactions, anonymity below a threshold), citing existing card-transaction surveillance.
Related Terms
Sources
- MIT Digital Currency Initiative (2022). “Project Hamilton Phase 1: A High Performance Payment Processing System Designed for Central Bank Digital Currencies.” Technical Report.
- BIS (2023). “CBDCs: An Opportunity for the Monetary System.” BIS Annual Economic Report.
- Board of Governors of the Federal Reserve System (2022). “Money and Payments: The U.S. Dollar in the Digital Age.” Discussion Paper.
- Rauchs, M. et al. (2023). “Retail CBDC Adoption and Privacy: Design Trade-offs.” NBER Working Paper.
- Congressional Research Service (2024). “Central Bank Digital Currency: Background and Policy Issues.” CRS Report R47543.