Executive Summary  

• The recently enacted 21st Century ROAD to Housing Act prohibits the Federal Reserve from issuing a “publicly available” retail Central Bank Digital Currency (CBDC) – a digital analog to cash – until at least 2031; even absent this legal prohibition, the Fed has indicated it will not issue a retail CBDC without congressional authorization. 
• Although a retail CBDC’s precise policy implications would depend on its final design, advocates and opponents of retail CBDCs each present plausible benefits and risks that a CBDC could introduce to the U.S. economy and financial system.  
• Both the importance of digital finance and questions about the international role of the U.S. dollar are likely to increase in the future – in part due to China’s ongoing development of a cross-border CBDC payment platform; as such, policymakers should continue to monitor developments in this evolving landscape.   

Introduction 

The bipartisan 21st Century ROAD to Housing Act, enacted on July 11, 2026, amended the Federal Reserve Act to prohibit the Federal Reserve (Fed) from issuing a “publicly available” retail Central Bank Digital Currency (CBDC) until at least 2031. As a digital dollar issued by the Fed, a retail CBDC would be a digital analog to cash. The Fed, under both Chairs Powell and Warsh, has indicated that even after this ban sunsets, it will not issue a retail CBDC in the absence of congressional authorization. 

While the design of a potential CBDC will dictate its policy implications, advocates of CBDCs highlight five key benefits that a CBDC might bring to the United States. They argue that a CBDC could (1) improve financial inclusion by creating a digital analog to cash; (2) strengthen the U.S. dollar’s role as the world’s reserve currency by providing convenient, safe, and global access to a digital dollar; (3) make slow and costly cross-border payments faster and cheaper; (4) give policymakers access to better economic data and, therefore, improve monetary policymaking by enabling policymakers to more accurately assess economic conditions; and (5) spur payments innovation by providing innovators with equal access to a trusted monetary base layer on which to develop new technologies.  

By contrast, opponents of a Fed-issued CBDC highlight five key risks, arguing that a CBDC could (1) violate financial privacy if the Fed can access consumers’ purchases; (2) threaten financial stability by incentivizing investors to shift funds into CBDC at the first sign of financial stress; (3) displace bank deposits, destabilize the banking sector, and reduce the availability of credit in the U.S. economy; (4) reduce the role of financial institutions in the economy and, thus, hinder the effectiveness of monetary policy; and (5) deter innovation by inserting the U.S. government further into the payments market.  

Although the ROAD Act settled this debate for at least the next five years, the debate over CBDCs in the United States is likely to become more important as digital finance and the international role of the U.S. dollar continue to evolve. China’s continued development (along with a few partner countries) of Project mBridge, a cross-border payments system that would enable payments to be made across different CBDCs without the U.S. dollar, only further heightens the continued importance of this debate and its implications for national and economic security. In particular, some analysts see mBridge as having the potential to make China’s CBDC, the e-CNY, a more viable alternative to the U.S. dollar for some cross-border payments. Policymakers should therefore continue to monitor CBDC developments to ensure they can respond effectively to future changes in digital and international finance.  

This primer reviews the existing money and payments landscape, Central Bank Digital Currencies, and their potential policy implications.  

Money and Payments 

To understand CBDCs in the proper financial context, it is necessary to review the United States’ monetary and payment systems. For most, these systems seem relatively simple, with consumers able to use a multitude of interchangeable payments options – including cash, credit cards, debit cards, and checks – all of which seem to transmit the same money: the U.S. dollar. Behind the monetary curtain, however, these U.S. dollars are not all the same. Their differences lie in their source and risk profile.  

There are two main categories of money in the United States. First, there is central bank money, which is defined as being a liability of the Federal Reserve and comes in two forms: the digital account balances that financial institutions hold at the Fed and cash. As the retail CBDCs considered in the ROAD Act are cash’s digital analog, this paper’s discussion of central bank money will focus on cash.  

Because it is a liability of the Fed, consumers should, in theory, be able to redeem cash at the Fed for something of value. In the past, consumers could redeem cash for gold. Today, however, consumers cannot redeem cash for anything. As a liability of the Fed, cash also bears no credit risk and is the most liquid form of money. In plain English, cash always has the same value irrespective of when or where it is used.  

The second dominant category of money in the United States is commercial bank money, which is a liability of its issuing bank that comes with a promise of 1:1 redemption into central bank money. For most consumers, commercial bank money is the money that they engage with daily, usually in the form of checks, debit cards, and credit cards. In theory, commercial bank money’s value is not inherently stable, as participants in every transaction must technically question whether a bank has enough assets to redeem its commercial bank money at a 1:1 rate with central bank money. In reality, however, there is essentially no uncertainty regarding the value of commercial bank money. As Fed Governor Chris Waller explains, consumers “treat commercial bank money and central bank money as…interchangeable…means of payment” because of the United States’ system of “substantial regulatory and supervisory oversight and federal deposit insurance.” 

Central bank and commercial bank money also seem to have the same ease of transaction; when consumers tap their credit or debit card to make a payment, it is as if the money transfers from the buyer’s to the seller’s account in the same way as cash transfers from one hand to the other. Behind the scenes, however, completing non-cash payments requires a complex system involving many actors. This system is known as the payments system.  

At the center of the payments system sits the Federal Reserve, which helps facilitate the processing of transactions involving transfers between different banks. Other core participants in the payments system include The Clearing House, a private consortium which operates its own payments-processing system, as well as the card processing companies Visa and Mastercard. Across the different payments infrastructures run by these organizations and others, the time it takes to complete a payment varies, with some completing in real time, while others operate with a lag.  

What does not vary across different digital payments infrastructures, however, is that consumers can only interact with them using commercial bank money. This means that consumers who wish to transact in the least risky form of money (i.e. central bank money) must carry cash. To provide consumers with a digital option that would obviate the need to carry cash to transact in central bank money, as well as other motivations discussed below, economists, researchers, and policymakers have been considering the creation of a digital analog to cash – a CBDC.  

What Is a Central Bank Digital Currency 

A Central Bank Digital Currency is a digital dollar liability issued by the Federal Reserve. Given this broad definition, it is common to separate CBDCs into those intended for use by businesses (wholesale CBDC) from those intended for use by consumers (retail CBDCs). Retail CBDCs can be understood as a digital analog to cash, which is a physical liability of the Federal Reserve. 

The ROAD Act’s CBDC prohibition is specific in targeting only retail CBDCs. Title XI of the bill defines prohibited CBDCs as any digital asset that is (1) “denominated in U.S. dollars,” (2) “a U.S. currency,” (3) “a direct liability of the Federal Reserve System,” and (4) “widely available to the general public.” While stipulations (1), (2), and (3) are straightforward, (4) is important in distinguishing prohibited CBDCs from the digital dollar liability satisfying conditions (1), (2), and (3) that the Fed already offers exclusively to commercial banks. That asset is, of course, digital reserve balances. The fact that stipulation (4) is included in the bill highlights how, for all intents and purposes, the Fed already offers what is effectively a CBDC in the form of these digital reserve balances, even though these balances are only available to banks in “wholesale” form and are not considered by the fed to be CBDCs.  

The retail CBDCs prohibited under the ROAD Act could be designed in a variety of ways. (A more in-depth discussion of design considerations can be found in the Fed’s 2022 report on CBDCs, the report’s accompanying summary of public comments, and a 2022 report from the U.S. Treasury.) One important design consideration is whether retail CBDCs would be held in accounts directly at the Fed or in accounts provided by commercial financial institutions. Another question is what payment technology would power CBDC transactions. Policymakers would also need to determine whether to make CBDCs interest-bearing, and whether a potential CBDC would have offline capability to conduct transactions without an internet connection.  

Policy Implications of CBDC Issuance 

While the specific combination of answers to these and other design questions will dictate the precise policy implications of a CBDC, advocates and opponents of CBDCs each highlight five key benefits or risks that a CBDC might bring to the U.S. economy and financial system. (More details on these benefits and risks can be found in the Fed and Treasury reports mentioned above, as well as in speeches by officials such as Fed Governor Christopher Waller and former Vice Chair for Supervision Randal Quarles.) Table 1 below previews these five benefits and risks. 

Table 1: Potential Benefits and Risks of CBDCs
Benefits	Risks
Increase financial inclusion by providing access to digital cash.	Violate financial privacy by giving the Fed access to consumer purchases.
Strengthen USD reserve currency status by giving global access to digital dollars.	Threaten financial stability by incentivizing flight-to-safety during financial stress.
Reduce time and cost of cross-border payments through digital finance.	Destabilize the banking sector and reduce credit provision by displacing bank deposits.
Improve economic data and, thus, monetary policy by clarifying economic conditions.	Hinder monetary policy effectiveness by reducing the role of financial institutions.
Spur payments innovation by providing a trusted monetary base layer.	Deter payments innovation by inserting the U.S. government further into payments.

First, advocates argue that CBDCs could increase financial inclusion by providing the 6 percent of U.S. adults without a bank account access to digital cash that could enable them to better participate in the country’s largely digital financial system. Second, proponents maintain that a U.S. CBDC could help defend the dollar’s role as the world’s reserve currency against the threats of foreign CBDCs and private money, such as stablecoins, by providing convenient, safe, and global digital access to the dollar. Third, supporters highlight how a CBDC could, depending on what payments technology is used to facilitate CBDC transactions, make cross-border payments faster and less expensive. Fourth, advocates note that, because the Fed could directly track consumers’ purchases using CBDC, a widely adopted CBDC might enable better economic data collection. Given recent challenges with federal survey data, such CBDC-driven data could give Fed policymakers a more complete picture of the U.S. economy and lead to an improvement in the conduct of monetary policy. Finally, CBDC supporters assert that a CBDC could spur payments innovation by providing the private sector with a trusted digital monetary base layer upon which they could innovate.  

By contrast, opponents of CBDCs first emphasize that a CBDC could violate financial privacy by not only giving the Fed access to a consumer’s purchases, but, depending on the design, also giving the Fed the ability to put conditions on consumer spending. For instance, the Fed could program CBDCs to accomplish normative political goals such as prohibiting consumers from buying guns or donating to human rights charities. Second, skeptics argue that a CBDC might threaten financial stability by incentivizing investors to sell assets and reinvest the proceeds in CBDC at the first sign of financial stress, thereby propagating the stress that caused the initial movement of funds into CBDC. Third, critics assert that CBDCs could displace the deposits that banks use to fund themselves and provide loans throughout the economy. CBDCs, these critics say, might thus both destabilize the banking sector and reduce availability of the credit that powers the U.S. economy. Fourth, opponents argue that a CBDC could hinder the effectiveness of monetary policy by reducing the economic role of the financial institutions whose activities channel monetary policy through the economy. And fifth, opponents of CBDC maintain that CBDCs might in fact deter payments innovation by disincentivizing innovators from competing against the vast resources of the Fed and, by extension, the U.S. government.  

While the materialization of these potential benefits and risks is entirely dependent on the design of a potential CBDC, policymakers in the United States have, at least for now, decided that the negatives outweigh the positives, and that now is not the time for CBDC development.  

Conclusion  

As digital finance, questions about the U.S. dollar’s role as the world’s reserve currency, and China’s cross-border CBDC payments system project mBridge continue to evolve, the debate over a U.S. CBDC is likely to remain policy relevant. Accordingly, policymakers should continue to monitor developments in the CBDC landscape.