The 35-page discussion paper on a government-backed coin makes no firm conclusions on whether (making it clear it did not "favour any policy outcome" at this point) it should be issuing a CBDC, but instead solicits feedback (as Powell had previously explained would be its purpose).

Powell has previously said any CBDC should serve "as a complement to, and not a replacement of, cash and current private-sector digital forms of the dollar, such as deposits at commercial banks".

The bank in the paper said a digital dollar could bolster the financial system by ensuring the U.S. dollar remains the preeminent currency in the international financial system, improve cross-border payments and increase financial inclusion and ease the dollar's use in new technology.

However, the central bank also warned of possible negative effects, including draining deposits from traditional banking and making runs on financial firms more likely or more severe. 

The Fed said:

"While a CBDC could provide a safe, digital payment option for households and businesses as the payments system continues to evolve, and may result in faster payment options between countries, there may also be downsides."

"They include how to ensure a CBDC would preserve monetary and financial stability as well as complement existing means of payment. Other key policy considerations include how to preserve the privacy of citizens and maintain the ability to combat illicit finance," it added.