The Federal Reserve plans to consider the idea of launching a U.S. digital currency. Central bank digital currencies are a hot topic among monetary-policy makers world-wide. More than 80 countries, representing 90% of the worlds gross domestic product, are looking into the technology. But these currencies come with serious risks. Without additional privacy measures, central bankers shouldnt establish them.
You are likely familiar with privately issued digital dollars, such as electronic balances in checking accounts. Central bank digital currencies are similar, except the liability is on the central bank, rather than private banks. One benefit of tying digital currencies to a central bank is that payments would also be processed by central banks, strengthening national and international payments systems and potentially lowering transaction costs. They could also address economic inequality by offering the unbanked a way to access the financial system via a direct account with the central bank.