Still Getting Your Head Around Digital Currency? So Are Central Bankers.

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America’s Federal Reserve says it is in no rush to issue a digital currency, but it is coming under intense and increasing pressure to research and understand the design and potential of digital money.

From the Bahamas to China, global central banks are experimenting with digital offerings, fueling concerns on Capitol Hill that the Fed might fall behind the competition. And breakneck innovation in the private sector suggests that the Fed, a key financial regulator, needs to understand budding private digital payment technologies.

Yet huge questions persist about a central bank digital dollar — such as, “What problem would this solve?” and, “How would it work?” Jerome H. Powell, the chair of the Fed, has been clear that while research is well underway, the Fed has a big responsibility as steward of the U.S. dollar, the world’s dominant currency. It would not issue a digital version of U.S. currency without congressional approval, and it is in no hurry to upend the existing monetary system before it fully understands the consequences.

“Does the public want, or need, a new digital form of central bank money to complement what is already a highly efficient, reliable and innovative payments arena?” Mr. Powell asked at an event in March. It’s a tricky question, and the central bank doesn’t seem to have a clear answer yet. Here’s why.

What is a central bank digital currency?

A central bank digital retail currency is, basically, electronic cash. Like a cryptocurrency such as Bitcoin, it is data-based and doesn’t exist in the physical world, but the similarities end there. Unlike cryptocurrency, it is backed by a government, meaning it is likely to be more universally recognized as “money” — something you can use broadly to buy goods and services and to pay taxes.

How is that different from the money in my Venmo or checking account?

You probably already