A Synopsis of the 2022 Digital Dollar Report by the Federal Reserve of the United States

Since the COVID-19 pandemic, people started adopting cashless and contactless transaction activities in businesses. Hardly any adults are using printed currency anymore. However, going cashless has put heavy dependence on private financial institutions whose fees can be quite unfavorable to the poor.

Millennials are paving the way for use of debit, credit, and digital payments made available on apps like Apple pay, Venmo, Cashapp, and M-Pesa. It would be difficult to ignore the trends, where the economy is moving to a predominantly cashless society influenced by consumers’ and businesses preferences.

As a result, the U.S. government is considering issuing its own Central Bank Digital Currency (CBDC), known as the digital dollar. 

The 2022 Digital Dollar Report written by the U.S. Federal Reserve Board of Governors examines the pros and cons of a potential U.S. digital legal tender and how this could improve the current payment systems in use within the country.

CBDCs are digital tokens of a country’s official currency regulated and backed by the country’s monetary authority or Central Bank. The digital dollar would be fully supported by the U.S. Federal Reserve, functioning like cash but without delays and fees. To carry out the transactions, citizens would send and receive the digital dollars or use government debit cards that would record a change in amounts in their digital-backed wallets separate from their private banking systems.


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In the report, the Federal Reserve assumes that a digital dollar should:

  • Complement the present forms of money
  • Refine the implementation of monetary and fiscal policies
  • Protect consumer privacy
  • Provide benefits to households and businesses
  • Prevent or lower criminal activity

To serve its functions, the digital dollar would need to be authenticated, privately protected, intermediated, and widely transferable.

The Federal Reserve believes the digital dollar will go a long way towards improving the U.S. economy. For instance:

  • It will simplify the implementation of monetary and fiscal policies by removing intermediaries
  • A CBDC would also remove barriers that would help usher the banked and the unbanked Americans into the digital economy
  • Moreover, the digital dollar would offer the general public broad access to digital money safe from credit and liquidity risk
  • It would help retain the international role of the dollar by maintaining its universal use, hence, improving trans-border payments

However, the Report glosses on certain risks surrounding adoption that have to be assessed. For instance:

  • The adoption of the digital dollar could alter the responsibilities of private institutions like banks
  • Fewer bank deposits would mean increased funding and credit costs, which would reduce the credit available to the public
  • Also, they noted that the ability to quickly convert other forms of money may disadvantage the Federal Reserve by causing financial panic

To prevent this, certain measures may be put up, such as limited supervision to prevent large cash outflows into the CBDC from commercial bank deposits. Other considerations that need to be made include the possibility of criminal activity occurring in the digital platforms and operational disruptions that may occur in cases of natural disasters. 

The Federal Reserve is right to consider the future of money, and how to go about the adoption of the current digital transformation. Notably, it is putting an effort to follow developments relating to digital payments and how adoption would impact all sectors in the economy.

In addition to that, it is working in collaboration with international organizations to enhance its understanding of CBDCs and other technological innovations within the financial sector.

At the conclusion of the Report, it provides a comment section that allows the public to share their opinions concerning the digital dollar and measures for adoption that would benefit the economy highlighting the multi-stakeholder approach they have on the matter. 


RECOMMENDED READING: Central Bank of Kenya Publishes a Discussion Paper on a Potential Central Bank Digital Currency (CBDC)


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