U.S. Department of the Treasury Report

September 2022

The Future of Money 

and Payments 

Report Pursuant to Section 4(b) of 

Executive Order 14067
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Table of Contents

I. Introduction....................................................................................................... 1

II. Money and payments ......................................................................................... 3

Money, payments, and the current payment system.................................................. 3

Consumers and payments today ............................................................................... 11

Recent innovations in money and payments ............................................................ 14

III. Potential U.S. CBDC design choices................................................................... 19

Money.......................................................................................................................... 19

Payment system.......................................................................................................... 20

Intermediaries............................................................................................................. 22

AML/CFT controls and CBDC ...................................................................................... 25

U.S. international engagement on digital assets ...................................................... 28

IV. Policy considerations ....................................................................................... 30

Consideration 1: Building the future of money and payments ................................ 30

Consideration 2: Supporting U.S. global financial leadership ................................. 34

Consideration 3: Advancing financial inclusion and equity ..................................... 37

Consideration 4: Minimizing risks ............................................................................. 40

V. Recommendations........................................................................................... 46

Recommendation 1: Advance work on a possible U.S. CBDC, in 

case one is determined to be in the national interest............................................... 46

Recommendation 2: Encourage use of instant payment systems 

to support a more competitive, efficient, and inclusive U.S. payment landscape.. 47

Recommendation 3: Establish a federal framework for payments 

regulation to protect users and the financial system, while 

supporting responsible innovations in payments. ................................................... 48

Recommendation 4: Prioritize efforts to improve cross-border payments. ........... 49

VI. Appendix: Policy objectives .............................................................................. 51

The Future of Money and Payments

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I. Introduction

On March 9, 2022, President Biden signed an Executive Order on Ensuring Responsible 

Development of Digital Assets (Executive Order).1 Section 4(b) of the Executive Order directs 

the Secretary of the Treasury, in consultation with the Secretary of State, the Attorney 

General, the Secretary of Commerce, the Secretary of Homeland Security, the Director of 

the Office of Management and Budget, the Director of National Intelligence, and the heads 

of other relevant agencies, to submit to the President a report on the future of money and 

payment systems.

This report reviews the current U.S. system of money and payments, including developments 

in instant payments and stablecoins. It also describes design choices for a potential U.S. 

Central Bank Digital Currency (CBDC) in the context of public policy considerations related 

to building the future of money and payments, supporting U.S. global financial leadership, 

advancing financial inclusion and equity, and minimizing risks. 

Money serves three core functions: a unit of account, a medium of exchange, and a store of 

value. It can be public money—primarily a liability of the central bank—or private money—a 

liability of a private intermediary. Payment systems transfer money. Consumers and 

businesses use retail payment systems for transactions that typically involve smaller dollar 

amounts; banks and other financial institutions use wholesale payment systems that generally involve larger dollar amounts. 

The central bank is at the center of the monetary system. Reflecting this position, central 

bank money tends to underpin interbank payments and serve as the backbone of the 

broader payment system. 2 In addition, the Federal Reserve provides currency and reserve 

balances, operates payment systems, and supervises certain intermediaries that issue private 

money and make payments. Even as the money and payment system evolves, the central 

bank’s role in final settlement must be preserved to promote economic growth, efficiency, 

and other public interests. 

The current U.S. system of money and payments has substantial strengths. The system has 

supported over a century of U.S. economic and financial leadership. It is also capable of processing an enormous volume of transactions in an efficient and reliable manner, and users 

of the payment system enjoy privacy protections. On the other hand, certain legacy payment 

systems can be slow, difficult to adapt, and challenging for some consumers or businesses 

to access. In addition, the United States has a significant population that is underserved 

1 Exec. Order No. 14067, 87 Fed. Reg. 14143 (March 9, 2022).

2 See generally Board of Governors of the Federal Reserve System, The Fed Explained: What the Central Bank 

Does Ch. 6 (11th ed. 2021), https://www.federalreserve.gov/aboutthefed/files/the-fed-explained.pdf.

The Future of Money and Payments

Introduction

1
by existing systems, indicating there remain substantial opportunities to promote broader 

financial inclusion.3

Recent innovations in money and payments, including instant payment systems and stablecoins, could have far-reaching implications. Instant payment systems generally preserve the 

core features of existing money and payment systems, while offering faster, more efficient, 

and potentially more inclusive ways to pay. Stablecoins aspire to be a new type of money 

supported by a novel payments technology, with implications for the payment system that 

are more difficult to predict. 

Against this backdrop, this report makes recommendations designed to improve the U.S. 

system of money and payments so that it best achieves a range of policy goals. The recommendations are for the U.S. government to:

• Recommendation 1: Advance work on a possible U.S. CBDC, in case one is determined to be in the national interest.

• Recommendation 2: Encourage use of instant payment systems to support a more 

competitive, efficient, and inclusive U.S. payment landscape.

• Recommendation 3: Establish a federal framework for payments regulation to 

protect users and the financial system, while supporting responsible innovations in 

payments.

• Recommendation 4: Prioritize efforts to improve cross-border payments, both to 

enhance payment system efficiency and protect national security.

3 See Section II, infra (citing and discussing, in the consumers and payments box, statistics regarding the use of financial services in the United States, including that the percentage of those who are unbanked in the United States is 

higher than in all other G-7 countries).

Introduction 

2
II. Money and payments

Money, payments, and the current payment system

Money

Money serves three core functions.4 First, money must serve as a unit of account, which 

means that it can be used to price goods and services. Second, money must serve as a 

medium of exchange in commerce to buy and sell goods and services. Third, money must 

serve as a store of value. That means the value of money is generally preserved over time. 

Money comes in two forms: public and private. Today, U.S. public money primarily consists 

of central bank money, which is a liability issued by the Federal Reserve.5 The general public 

uses public money in the form of paper currency, or Federal Reserve notes, for everyday 

transactions. Banks and certain other institutions can access central bank reserve balances.6 

Coin is also considered public money and is issued by the Treasury. There are $2.2 trillion in 

Federal Reserve notes, $3.3 trillion in reserve balances, and $50 billion in coin outstanding.7

Private money includes “commercial bank money”—dollar-denominated balances in 

commercial bank accounts.8 Certain other liabilities of nonbanks, such as balances held with 

financial technology (fintech) firms, other nonbank financial institutions, or other payments 

providers to effect transfers, can also be viewed as private money.9 There is currently at least 

$19.4 trillion in private money in the United States.10

4 A historical source for this taxonomy (along with a fourth function, standard of value) is W. Stanley Jevons, Money 

and the Mechanism of Exchange (1875). U.S. coins and currency, including Federal Reserve notes, are “legal tender,” 

meaning that these instruments are valid payment for debts, taxes, and other dues. See 31 U.S.C. § 5103. See also Jess 

Cheng & Joseph Torregrossa, A Lawyer’s Perspective on U.S. Payment System Evolution and Money in the Digital Age, 

FEDS Notes (Feb. 4, 2022), https://www.federalreserve.gov/econres/notes/feds-notes/a-lawyers-perspective-on-uspayment-system-evolution-and-money-in-the-digital-age-20220204.htm.

5 Treasury securities are often considered another form of public money, although generally not used for payment. 

Consequently, the definition abstracts from Treasury securities, although the substitutability of money with Treasury 

securities should be considered. See Arvind Krishnamurthy & Annette Vissing-Jorgensen, The Aggregate Demand for 

Treasury Debt, 120 J. Pol. Econ. 233 (2012); Stefan Nagel, The Liquidity Premium of Near-Money Assets, 131 Q. J. Econ.

1927 (2016).

6 See Board of Governors of the Federal Reserve System, Money & Payments: The U.S. Dollar in the Age of Digital 

Transformation 25 (Jan. 2022), https://www.federalreserve.gov/publications/files/money-and-payments-20220120.

pdf [hereinafter “FRB Money & Payments”]. In this context, the term “bank” refers to state and federally chartered 

depository institutions. Transactions within the same institution (e.g., between two customers of the same bank) settle in the liabilities of that institution.

7 Board of Governors of the Federal Reserve System, Federal Reserve Statistical Release H.4.1 (August 18, 2022), 

https://www.federalreserve.gov/releases/h41/20220818/; U.S. Treasury Department, Treasury Bulletin, (as of June 30, 

2022), https://www.fiscal.treasury.gov/reports-statements/treasury-bulletin/.

8 See FRB Money & Payments, supra note 6, at 25.

9 See id. at 26.

10 This estimate is calculated as M2 less currency in circulation. Board of Governors of the Federal Reserve System, 

Money Stock Measures–H.6 Release (August 23, 2022), https://www.federalreserve.gov/releases/h6/default.htm.

The Future of Money and Payments

Money and payments

3
Public and private money have coexisted throughout U.S. history. Because public money is 

currently only accessible to the general public as paper currency or coins, private money can 

be more convenient for the public to use to make payments. And while public and private 

money may often be interchangeable in their use—a consumer may pay for the same goods 

and services using cash or bank deposits with equal ease—the safety and liquidity of public 

and private money differ. Central bank money presents no credit or liquidity risk. Because 

of this, settlement in central bank money eliminates uncertainty in transactions, supporting 

economic activity and financial stability. By contrast, private money may present credit or 

liquidity risk, depending on the solvency and liquidity of the issuer, as well as the availability 

of a government backstop (e.g., a central bank lender of last resort or deposit insurance). 

Private money usually promises conversion on a one-for-one basis into public money, on 

demand. Because of this feature, private money is susceptible to runs. Runs can happen 

when the solvency or the liquidity of the assets or liabilities of the private money issuer come 

into question, and holders of private money seek to convert to public money. The risk of 

runs at federally and state-chartered insured depository institutions is mitigated substantially 

through prudential supervision and regulation, eligibility to access the discount window, and 

federal deposit insurance.11 But not all private money enjoys similar safeguards and therefore 

some issuers of private money may be more susceptible to runs.12

Payment systems

Payment systems facilitate the exchange of goods and services for money and, as such, 

enable the economy to function. A payment system is a set of rules and processes for 

transferring money. A payment involves sharing and verifying instructions (e.g., How much? 

To whom?), in a process referred to as “clearing,” and the transfer of funds to discharge the 

obligation, referred to as “settlement.”13 Clearing and settlement in payment systems require 

(1) parties to the transaction and a network of participants – a sender, a receiver, and often 

one or more financial institutions; (2) an asset or set of assets that are transferred among 

those participants; and (3) a transfer process that defines the procedures and obligations 

associated with the transaction. 

In general, consumers and businesses use “retail” payment systems, while banks and other 

financial institutions access “wholesale” payment systems. Retail payment systems process 

high volumes of lower-value transactions on behalf of consumers and businesses, and may 

11 See FRB Money & Payments, supra note 6, at 26. See generally Douglas W. Diamond & Philip H. Dybvig, Bank Runs, 

Deposit Insurance, and Liquidity, 91 J. POL. ECON. 401 (1983). 

12 See FRB Money & Payments, supra note 6, at 27.

13 See Bank for International Settlements Committee on Payments and Market Infrastructures, Correspondent 

banking, Glossary, https://www.bis.org/cpmi/publ/d00b.htm?m=2266; Board of Governors of the Federal Reserve 

System, Federal Reserve Policy on Payment System Risk (March 19, 2021), https://www.federalreserve.gov/paymentsystems/files/psr_policy.pdf; Board of Governors of the Federal Reserve System, supra note 2.

Money and payments 

4
not settle instantly (i.e., in real time). Wholesale payment systems support larger-value 

transactions for financial institutions and government agencies and may use some form of 

real time or continuous settlement. A single form of money can use more than one payment 

system; for example, private bank money (i.e., deposits) can be transferred using checks, 

automated clearing house (ACH) systems or debit cards. 

Physical currency is the simplest form of payment and embodies many essential features that 

noncash payment systems seek to emulate. A payment in cash settles immediately, does not 

rely on an extension of credit by a third party, and enables recipients to access the proceeds 

of a transaction immediately. Cash is also nearly universally accepted, does not carry an 

additional charge or fee per transaction, and typically protects users’ privacy, which may be 

valuable for a wide array of consumers including vulnerable populations. 

At the same time, cash is inconvenient for large transactions, is vulnerable to being lost or 

destroyed, and cannot be sent or requested automatically; in addition, many cash transactions14 cannot be audited. The risk of counterfeit, theft, or error is largely borne by the direct 

participants to the transaction. As financial institutions have strengthened anti-money 

laundering controls, terrorists and other criminals have increasingly turned to cash to transfer 

funds – capitalizing on its anonymity, portability, and liquidity.15

By definition, noncash payment systems transfer money in a form other than physical 

currency. Noncash payment systems include, but are not limited to, large-value funds 

transfer systems, ACH operators, and credit and debit card systems. Together, these systems 

offer features that cash cannot: They are capable of moving large sums of money across 

geographic distances, are traceable, and permit some automation of payments or requests 

for payment. Like cash, some noncash payment systems process transactions in real time 

and on a transaction-by-transaction basis (referred to as “gross” settlement).16 Other noncash 

payment systems settle batches of transactions at predetermined times (referred to as “net” 

settlement) or with deferred settlement of obligations. Regardless of gross or net settlement, 

final settlement for noncash payment systems generally involves central bank money, 

minimizing the risk that transactions would not be completed at the end of a business day. 

Noncash payment systems are generally centrally administered, governed by mutually agreed 

14 Under the Bank Secrecy Act (BSA) and implementing regulations, financial institutions and any nonfinancial trade or 

business must file a report concerning a transaction, or series of related transactions, in excess of $10,000 in currency. 

31 U.S.C. § 5313 & 5331; 31 C.F.R. §§ 1010.310-330.

15 Department of the Treasury, 2022 National Terrorist Financing Risk Assessment 20 (February 2022), https://

home.treasury.gov/system/files/136/2022-National-Terrorist-Financing-Risk-Assessment.pdf.

16 For example, the Fedwire Funds Service is “a real-time gross settlement system that enables participants to initiate 

funds transfer that are immediate, final, and irrevocable once processed . . . and is generally used to make large-value, 

time-critical payments.” Board of Governors of the Federal Reserve System, Fedwire Funds Services, https://www.

federalreserve.gov/paymentsystems/fedfunds_about.htm. 

The Future of Money and Payments

Money and payments

5
upon network rules, and have defined processes in place for resolving disputes, errors, or 

fraudulent transactions. 

Because net settlement may not occur instantly, noncash payment system can expose participants to credit risk and liquidity risk. Noncash payment systems that settle on a net basis 

establish rules, procedures and controls for managing these risks. Noncash payment systems 

often charge a fee for processing transactions, either per transaction or in a flat rate based on 

volume. 

Cross-border payment systems

Cross-border payments occur when persons or businesses in one jurisdiction send or receive 

money from other persons or businesses in another. Consumers in the United States typically 

make cross-border payments from the United States using cash, debit and credit cards, or 

wire or ACH transfers. For remittance transfers, cross-border payments from one person or 

household to another, money transfer operators allow consumers to use bank accounts, 

credit and debit cards, and cash in-store to fund transfers, making funds available to a recipient at a foreign branch or local agent, typically paid out in the form of cash but sometimes 

also available via check or transfers to a bank account. For retail purchases from foreign 

merchants, either while traveling abroad or shopping online, consumers and businesses can 

generally use credit and debit cards issued by a domestic bank for purchases. Consumers or 

businesses can also send money abroad via ACH or wire transfer. Depending on the region, 

cross-border retail payments can take up to multiple days to clear, and remittance payments 

carry fees of 6.4 percent on average, while non-remittance cross-border retail payments carry 

fees of up to 10 percent.17

Cross-border payments typically settle through correspondent banking networks,18 often 

on a per transaction basis for wholesale payments and a netted basis for a batch of retail 

payments.19 Card networks rely on the correspondent banking system to settle cross-border 

payments with each transaction relying on the issuing bank of the payer and the acquiring 

bank of the payee. Remittance service providers can also rely on correspondent banking 

networks to send remittances to their destination, especially when the payment destination is 

an affiliated entity. Other remittance providers with operations at both the origin and destination of a payment may settle transactions on their own books, in a closed-loop system. For 

17 Financial Stability Board, Targets for Addressing the Four Challenges of Cross-Border Payments 9-10 (Oct. 

13, 2021), https://www.fsb.org/wp-content/uploads/P131021-2.pdf. 

18 Correspondent banking can be defined as arrangements where one bank (correspondent) holds deposits owned 

by other banks (respondents) and provides payment and other services to those respondent banks. See Bank For 

International Settlements Committee on Payments and Market Infrastructures, Correspondent banking 9 (July 

2016), https://www.bis.org/cpmi/publ/d147.pdf. 

19 Financial Stability Board, Enhancing Cross-Border Payments (April 9, 2020) 3 n. 11, https://www.fsb.org/wp-content/uploads/P090420-2.pdf. 

Money and payments 

6
wholesale payments, large private cross-border payments platforms provide cross-border 

and foreign exchange mechanisms for financial institutions on their own platform, but local 

central bank-operated payment infrastructure, such as Fedwire in the United States, underpins final settlement.20

Central banks, legacy financial service providers, and new entrants to financial services are 

creating new ways for payments to cross borders. The Federal Reserve has linked the U.S. 

ACH system with local settlement systems in Canada, the Eurozone, the United Kingdom, 

Mexico, and Panama, allowing consumers and businesses to transfer funds directly from 

U.S. bank accounts to bank accounts in those countries.21 Financial technology companies 

are increasingly entering the cross-border payments space, particularly for peer-to-peer 

payments. For example, financial technology companies are entering the remittance market, 

allowing consumers to fund “mobile wallets” online with their bank accounts and credit or 

debit cards and to send money directly to foreign mobile wallets.22 However, these providers 

often must still rely on correspondent banks for settlement or provide “on us” settlement, in 

which both legs of a foreign exchange transaction are settled on the books of a single bank. 

Incumbent money transfer operators also provide similar online services.23 Finally, even 

when available, not all commercial banks offer these services on competitive terms, or at all, 

to retail consumers. In addition, the total number of active correspondent banking relationships and active corridors has declined over the past decade.24

Intermediaries

Money and payments often involve intermediaries. Intermediaries, like banks and some 

nonbanks, issue private forms of money and provide access to payment services. 

Banks illustrate each of these roles. Banks issue insured deposits, uninsured deposits, and 

other liabilities used by customers, businesses, and nonbank financial intermediaries as 

money. Banks hold money balances for depositors, some of which are available on demand. 

Banks enable the transfer of money through payment services, which allow their customers 

to make payments to, or receive payments from, customers of the same or other banks. 

Banks also facilitate the distribution of cash from the Federal Reserve to bank customers by 

allowing customers to convert their deposit balances into paper currency on a one-for-one 

basis.25 

20 See generally Robert Lindley, Reducing Foreign Exchange Settlement Risk, BIS Quarterly Review (Sept. 2008), 

https://www.bis.org/publ/qtrpdf/r_qt0809g.pdf.

21 Federal Reserve, FedGlobal ACH Payments, https://www.frbservices.org/financial-services/ach/fedglobal. 

22 See generally Florian Seeh, How New Entrants Are Redefining Cross-Border Payments, EY (Feb. 23, 2021), https://www.

ey.com/en_us/banking-capital-markets/how-new-entrants-are-redefining-cross-border-payments. 

23 See, e.g., WesternUnion, Send Money to a Mobile Wallet, https://www.westernunion.com/fr/en/mobile-wallet.html. 

24 Bank for International Settlements, New Correspondent Banking Data – The Decline Continues, https://www.bis.

org/cpmi/paysysinfo/corr_bank_data/corr_bank_data_commentary_1905.htm. 

25 For example, bank customers often obtain cash using a debit card attached to an ATM network. When a customer 

The Future of Money and Payments

Money and payments

7
Nonbank intermediaries are involved in the issuance, transfer, and custody of money or 

money-like assets. Some offer complementary financial services and are integrated with 

e-commerce and social media platforms. Internationally, telecoms have likewise developed 

payments services linked to mobile phone numbers. These services typically allow users to 

manage nonbank balances at a network of authorized agents, often small retailers, which 

they can use for payments and transfers via SMS messaging.26 

Financial intermediaries are subject to regulatory frameworks at the state level, the federal 

level, or both, but applicable regulatory frameworks vary by the type of institution and its 

activities. Depending on their application, these frameworks may address a range of risks, 

including protection of customers, the safety and soundness of the intermediary, financial 

stability, and the smooth functioning of the payment system. 

Under U.S. laws and regulations, financial intermediaries also play an important role in 

mitigating the risk of money laundering and terrorist financing.27 To protect user privacy, 

regulated U.S. financial institutions are generally required to maintain the security and confidentiality of customer information and prevent unauthorized disclosure of customer financial 

information.28 If the U.S. government wants to obtain financial information, authorities must 

generally follow specific procedures, providing a level of protection against unwarranted 

government scrutiny and surveillance.29 

makes an ATM withdrawal, a bank converts a portion of the customer’s deposit balance into cash on a one-for-one 

basis. In turn, banks order cash from their Federal Reserve Bank, which consists of a request for reserve balances to be 

converted into paper currency. 

26 Of note, while nonbank intermediaries clear payments, final settlement usually occurs in central bank money using a 

bank sponsor.

27 Under the BSA framework, U.S. financial institutions, including banks and money services businesses (MSB), are generally required to fulfill a number of core obligations, including record-keeping, reporting suspicious activity, monitoring transactions, establishing and executing customer identification programs, verifying customer identities, 

and maintaining anti-money laundering/countering the financing of terrorism (AML/CFT) programs. See generally

Financial Crimes Enforcement Network, The Bank Secrecy Act, https://www.fincen.gov/resources/statutes-and-regulations/bank-secrecy-act#:~:text=The%20Currency%20and%20Foreign%20Transactions,detect%20and%20

prevent%20money%20laundering.

28 Financial institutions are also required to inform customers how their information could be shared. See Financial 

Modernization Act of 1999 or the Gramm-Leach-Biley Financial Services Modernization Act, 15 U.S.C. §§ 6801 et seq.

29 See generally 1978 Right to Financial Privacy Act, 12 U.S.C. §§ 3401 et seq.

Money and payments 

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Table 1: Major noncash payment systems30

System & Type Operator Participants Function & Features Volume31

Fedwire 

(Large-value, 

Wholesale)

Federal 

Reserve

Banks and other 

Federal Reserve 

account holders 

Large-value, time-critical 

payments. Real-time gross 

settlement, transactions 

final and irrevocable once 

processed. 

In 2021:

Transactions: 204.5M 

Total value: $991.8T. 

CHIPS

(Large-value, 

Wholesale)

The Clearing 

House 

Large banks

(43 total)

Large-value interbank 

payments. Continuous 

net settlement system that 

matches, nets, and settles 

transactions. 

In 2021:

Transactions: 127.9B 

Total value: $448.7T

FedACH Federal 

Reserve

Banks, Treasury, 

government 

agencies 

Batched direct debit and direct 

credit payments. Used for preauthorized recurring payments, 

such as payroll, social security, 

and utilities. 

In 2021: 

Commercial ACH

Transactions: 17.9B

Total value: $37.0T

Government ACH 

Transactions: 2.0B 

Total value $8.1T

Electronic 

Payments Network 

(ACH)

The Clearing 

House 

Banks 

(approximately 

300) 

Batched direct debit and direct 

credit payments. Primarily 

used for pre-authorized 

recurring payments, such as 

payroll, and utilities. 

In 2021:

Transactions: 29.1B 

Total value $72.6T

30 See generally Board of Governors of the Federal Reserve System, supra note 2; Federal Reserve System, 

Guidelines for Evaluating Account and Services Requests, https://www.federalreserve.gov/newsevents/pressreleases/

files/other20220815a1.pdf; Board of Governors of the Federal Reserve System, supra note 16; The Clearing 

House, About CHIPS, https://www.theclearinghouse.org/payment-systems/chips; The Clearing House, CHIPS 

Participants, https://www.theclearinghouse.org/-/media/new/tch/documents/payment-systems/chips_participants_

revised_01-25-2021.pdf; The Federal Reserve, FedACH Products & Services, https://www.frbservices.org/financial-services/ach#:~:text=FedACH%C2%AE%20Products%20%26%20Services,Clearing%20House%20(ACH)%20network; The 

Clearing House, 2021 ACH Volume on TCH’s EPN Outpaces Industry (March 7, 2022), https://www.theclearinghouse.

org/payment-systems/articles/2022/03/2021_ach_volume_tchs_epn_outpaces_industry_03-07-2022; The Federal 

Reserve, Check Products & Services, https://www.frbservices.org/financial-services/check#:~:text=The%20Federal%20

Reserve%20Banks%27%20Check,a%20variety%20of%20processing%20options; The Federal Reserve, About the 

FedNow Service, https://www.frbservices.org/financial-services/fednow/about.html; The Clearing House, RTP 

Network Frequently Asked Questions, https://www.theclearinghouse.org/payment-systems/rtp/institution. 

31 See Board of Governors of the Federal Reserve System, Fedwire Funds Services: Data and Additional Information, 

https://www.federalreserve.gov/paymentsystems/fedfunds_data.htm; The Clearing House, CHIPS Annual Statistics 

from 1970 to 2022, https://www.theclearinghouse.org/-/media/new/tch/documents/payment-systems/chips_volume_

value_ytd_june_2022.pdf; Board of Governors of the Federal Reserve System, Automated Clearinghouse Services: 

Data, https://www.federalreserve.gov/paymentsystems/fedach_data.htm; The Clearing House, 2021 ACH Volume on 

TCH’s EPN Outpaces Industry, supra note 30; Nacha, ACH Network Sees 29.1 Billion Payments in 2021, Led by Major Gains 

in B2B and Same Day ACH, https://www.nacha.org/news/ach-network-sees-291-billion-payments-2021-led-majorgains-b2b-and-same-day-ach; Board of Governors of the Federal Reserve System, Check Services: Data, https://

www.federalreserve.gov/paymentsystems/check_data.htm; The Clearing House, Real-Time Payments for All Financial 

Institutions, https://www.theclearinghouse.org/payment-systems/rtp. For a discussion of trends in credit and debit 

payments, see Board of Governors of the Federal Reserve System, Federal Reserve Payments Study (FRPS), https://

www.federalreserve.gov/paymentsystems/december-2021-findings-from-the-federal-reserve-payments-study.htm. 

The Future of Money and Payments

Money and payments

9
System & Type Operator Participants Function & Features Volume31

Federal Reserve 

Check Services

Federal 

Reserve

Banks, 

Government 

agencies

Paper and electronic collection 

and processing of checks; 

electronic is now the primary 

method of check processing, 

with collection and settlement 

typically occurring within one 

day. 

In 2021:

Commercial checks

Transactions: 3.7B

Total value: $8.8T

Government checks

Transactions: 131M 

Total value: $273B

FedNow Service Federal 

Reserve

Banks and other 

Federal Reserve 

account holders, 

U.S. Treasury 

Bureau of the 

Fiscal Service

Not yet operational; expected 

to launch in 2023. Will enable 

payments at all times, including 

after business hours, with realtime gross settlement.

N/A

Real Time Payment 

(RTP) Network

The Clearing 

House 

Banks Real-time, gross settlement In 2Q22:

Transactions: 41.2M 

Total value: $18B

Table 1: Major noncash payment systems (continued)

Money and payments 

10
Consumers and payments today

For most Americans, making a payment involves a choice. When interacting with a seller 

in person, merchants may present consumers with several payment options, including 

cash, credit or debit card, prepaid card, mobile payment app, or check. Online shopping 

and other electronic payments might allow consumers to use some of the same options, 

as well as bank transfers (e.g., ACH payments) or other mechanisms for making electronic 

purchases. A survey conducted by the Federal Reserve, illustrated in Figure 1 and Figure 2 

below, provides a glimpse into the payment choices made by consumers in recent years.32 

It also reveals how consumer payment preferences may change over time or in different 

circumstances, as evidenced by the notable decrease in the use of cash during the COVID19 pandemic.33 Nevertheless, use of cash in the United States remains higher than in 

certain other advanced economies.34

Figure 1: Share of payments use (by number) over time

Source: Federal Reserve Bank of San Francisco

32 Emily Cubides & Shaun O’Brien, 2022 Findings from the Diary of Consumer Payment Choice, Federal Reserve Bank of 

San Francisco FedNotes (May 5, 2022), https://www.frbsf.org/cash/publications/fed-notes/2022/may/2022-findingsfrom-the-diary-of-consumer-payment-choice/ [hereinafter “Diary of Consumer Payment Choice”]. See also Board of 

Governors of the Federal Reserve System, Federal Reserve Payments Study (FRPS), supra note 31. 

33 See Diary of Consumer Payment Choice, supra note 32. 

34 See Board of Governors of the Federal Reserve System, supra note 6, at 16.

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While consumers can use each of these payment options to pay for the goods and 

services they need, payment options may differ in important respects. First, the laws, 

regulations, and rules that govern consumer transactions and promote consumer 

protection may vary across methods of payment. For example, the extent to which a 

consumer can be held liable for purchases made on a stolen card depends not just on 

how quickly the cardholder reports the theft, but also on whether the stolen card was a 

credit card or a debit card.35

Speed and cost may also vary significantly across payment methods. While cash 

changes hands instantaneously, checks and bank transfers may take up to several days 

before funds become available to the recipient. And while paying via credit or debit 

card may be quicker in terms of funds receipt to the seller compared to checks and bank 

transfers, financial costs for these methods may be higher. The cost borne by users or 

merchants averages nearly 2 percent and 1 percent for credit and debit card transactions, 

respectively.36 These high costs are shouldered by American consumers and businesses 

at far higher levels than their European or Canadian counterparts.37 And while the costs 

in the United States are exceeded by those in Brazil, Brazil’s recent instant payments 

innovation (Pix) could lower transaction costs in Brazil.38

Delays and fees also affect American households and businesses as recipients of funds. 

High fees contribute to many households remaining unbanked or underbanked.39 Some 

are forced to draw against already low balances and are charged overdraft fees. Estimates 

suggest that banks charge $15 billion or more each year in such fees.40 Other households 

rely on nonbank check cashers.41

35 Compare 15 U.S.C. § 1643; 12 C.F.R. § 1026.12(b) (Regulation Z), with 15 U.S.C. § 1693g; 12 C.F.R. § 1005.6 (Regulation 

E). 

36 Bank for International Settlements, BIS Annual Economic Report 2022, III: The Future Monetary System 99, 

https://www.bis.org/publ/arpdf/ar2022e3.pdf. 

37 Id.

38 Id.; see also Duarte et al., BIS Bulletin No. 52: Central banks, the monetary system and public payment infrastructures: lessons from Brazil’s Pix (March 23, 2022), https://www.bis.org/publ/bisbull52.pdf. 

39 FDIC, How America Banks: Household Use of Banking and Financial Services 3, 55 (2019), https://www.fdic.gov/

analysis/household-survey/2019report.pdf.

40 CFPB, CFPB Research Shows Banks’ Deep Dependence on Overdraft Fees (Dec. 1, 2021), https://www.consumerfinance.

gov/about-us/newsroom/cfpb-research-shows-banks-deep-dependence-on-overdraft-fees/.

41 See FDIC, supra note 39, at 55.

Consumers and payments today

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Money and payments 

12
The payment choices available to consumers must be understood within the broader 

context of financial inclusion. The percentage of the United States that is unbanked is 

higher than the percentage in all other G-7 countries.42 Although most U.S. households 

maintain bank accounts, estimates suggest that 7 million (5.4 percent of total U.S. 

households) are unbanked, and an additional 24.2 million or 18.7 percent of U.S. 

households have bank accounts but still rely on alternative forms of financial services, 

such as check cashing and money orders.43 And certain consumers may be less willing, 

or less able, to participate in newer forms of payments.44 Some evidence suggests that 

lower-income consumers, for example, are several times more likely to make payments in 

cash than consumers with higher income, even during the pandemic, as shown in Figure 

2.45 In addition, making payments internationally can be especially slow and costly (on 

average 5 percent for sending remittances from the United States), placing burdens on 

consumers and families that need to send international remittances and may be the least 

able to bear the cost.46 In short, not all consumers make the same payment choices or 

have the same access to payment options, and certain segments of the population may 

disproportionately bear the costs and inefficiencies of payment systems.

42 See The World Bank, The Global Findex Database 2021, https://www.worldbank.org/en/publication/globalfindex/

Data (survey data reporting 95% of individuals ages 15 and up with an account in the United States, which drops to 

91% when considering only those in the poorest 40% of households, and is higher than the numbers reported for all 

other G-7 countries)https://databank.worldbank.org/source/global-financial-inclusion; see also The World Bank, 

Databank: Global Financial Inclusion, https://databank.worldbank.org/source/global-financial-inclusion.

43 A household is “unbanked” if no one in the household had a checking or savings account; estimates for unbanked 

households come from FDIC, supra note 39 at 1. A household is “underbanked” if it had a checking or savings account 

and used one of the following products or services from an alternative financial services provider in the past 12 

months: money orders, check cashing, international remittances, payday loans, refund anticipation loans, rent-toown services, pawn shop loans, or auto title loans; estimates for underbanked households come from FDIC, 2017 FDIC 

National Survey of Unbanked and Underbanked 

Households 1, https://www.fdic.gov/analysis/household-survey/2017/2017report.pdf. See also Michael S. Barr, No Slack: 

The Financial Lives of Low-Income Americans (2012).

44 See generally Diary of Consumer Payment Choice, supra note 32.

45 Id.

46 See The World Bank, Average Transaction Cost of Sending Remittance from A Specific Country - United States, https://

data.worldbank.org/indicator/SI.RMT.COST.OB.ZS?end=2020&locations=US&start=2020&view=bar; The World Bank, 

Remittance Prices Worldwide, https://remittanceprices.worldbank.org/countrycorridors. 

Consumers and payments today

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Figure 2: Share of payment instrument use by household income

Source: Federal Reserve Bank of San Francisco

Recent innovations in money and payments

Recent years have seen innovations in money, U.S. retail and wholesale payments, and 

cross-border payments.47 Some of these innovations build additional user functionality on 

top of existing payment systems, but two innovations are more fundamental and therefore 

may have farther-reaching implications: Instant payment systems and stablecoins. Instant 

payment systems are an important upgrade to the current payment system. Stablecoins 

aspire to be a new type of money supported by a novel payments technology; however, 

stablecoins present a greater number of risks related to their financial and technological 

characteristics compared to instant payments and other existing forms of money and payments, making it more difficult to predict the impact of stablecoins on the future of money 

and payments.

47 For an overview of innovations globally, see generally Eswar S. Prasad, The Future of Money: How the Digital 

Revolution is Transforming Currencies and Finance (2021).

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14
Instant payments

Retail instant payment systems (instant payment systems) process small-value interbank 

transfers such that funds are available nearly instantly, as opposed to the potentially multiday settlement period for retail transfers on certain legacy bank payment systems.48 Instant 

payment systems usually use bank deposit money but ultimately settle in central bank 

reserve balances, similar to other retail payment systems. In the United States, examples 

of instant payment systems include the Clearing House’s RTP Network (RTP), which was 

launched in 2017, and the FedNow Service, which the Federal Reserve plans to launch in 

2023.49 

Network effects support the adoption of instant payment systems: Widespread use makes it 

more likely that a payor can use an instant payment system to make a payment to a payee, 

increasing the system’s value.50 More specific factors affecting adoption of instant payment 

systems include the range of institutions that are eligible to participate, the number of 

institutions that choose to participate, and how these institutions make the service available 

to their customers. For example, an easy-to-use user interface could promote greater use 

of instant payments.51 These systems could also expand access to electronic payments to 

underserved or unbanked consumers. These capabilities have been included in international 

contexts, demonstrating potential benefits such as competition and consumer choice.52

Currently, federally insured depository institutions are eligible to participate in RTP.53 The 

FedNow Service will be accessible by all U.S. depository institutions, as well as by U.S. 

branches of foreign banks. Broadening the range of financial institutions that are eligible 

to participate in instant payment systems, as certain foreign jurisdictions have done, could 

help to enhance speed and efficiency, competition, and inclusion in payments, including 

for cross-border payments.54 The FedNow Service will not initially focus on cross-border 

payments, though it may facilitate cross-border payments in the future.

48 See generally Bank for International Settlements Committee on Payments and Markets Infrastructures, 

Developments in Retail Fast Payments and Implications for RTGS Systems (Dec. 2021), https://www.bis.org/cpmi/

publ/d201.pdf; Bank for International Settlements Committee on Payments and Markets Infrastructures, Fast 

Payments – Enhancing The Speed and Availability of Retail Payments (Nov. 2016), https://www.bis.org/cpmi/publ/

d154.pdf.

49 The Federal Reserve, About the FedNow Service, supra note 30; The Clearing House, RTP Network Frequently Asked 

Questions, supra note 30.

50 See Bank for International Settlements Committee on Payments and Markets Infrastructures, Fast Payments – 

Enhancing The Speed and Availability of Retail Payments, supra note 48, at 11.

51 See, e.g., DUARTE et al., supra note 38.

52 William Cook, Comparing India’s UPI and Brazil’s New Instant Payment System, PIX, Consultative Group to Assist the 

Poor (Feb. 2, 2021), https://www.cgap.org/blog/comparing-indias-upi-and-brazils-new-instant-payment-system-pix.

53 The Clearing House, RTP Network Frequently Asked Questions, supra note 30. Some have expressed concern regarding access to these services. See, e.g., Faster Payments in the United States, Hearing before the Senate Committee on 

Banking, Housing, and Urban Affairs (Sept. 25, 2019).

54 See, e.g., Bank for International Settlements Committee on Payments and Markets Infrastructures, Improving 

Access to Payment Systems for Cross-Border Payments: Best Practices for Self-Assessments 12–16 (May 2022), 

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15
Greater use of instant payments comes with new risks that should be appropriately 

addressed. For example, payments made across instant payment systems are generally 

irreversible and, therefore, may expose users to increased risk-of-loss. Financial institutions 

that provide instant payments may need to manage incremental financial and operational 

risks, including those related to intraday liquidity, anti-money laundering/countering the 

finance of terrorism (AML/CFT) compliance, and fraud detection, prevention, and response. 

High levels of interoperability among instant payment systems in different jurisdictions could 

help reduce transaction costs, but it could also introduce new illicit finance, counterparty, 

operational, and cyber risks. Moreover, differences in AML/CFT obligations for institutions 

that directly participate in instant payment systems, such as different customer identification 

requirements, could complicate efforts to create a seamlessly functioning whole.

Since 2001, more than 60 jurisdictions across all continents have launched instant payment 

systems.55 These systems can have different features such as real-time gross or deferred net 

settlement, and different design features such as transaction value limits, among others. 

Certain central banks are also integrating these payment systems with shared directory 

services. This integration facilitates interoperability between participating financial institutions and payment service providers, enhancing efficiency, speed and competition.56 As part 

of the G20 cross-border payments roadmap, jurisdictions are also considering ways to link 

instant payment systems and the feasibility of new multilateral platforms and arrangements 

to improve cross-border payments.57 

Stablecoins

Stablecoins are digital assets issued by private entities that aim to maintain a stable value 

relative to a national currency or other reference assets, often utilizing distributed ledger 

technology, such as blockchain.58 To maintain a stable value, many stablecoins offer a 

promise or create an expectation that the coin can be redeemed at par upon request.59 These 

“asset-backed stablecoins” are often advertised as being supported or backed by reserve 

assets, which may consist of short-term or liquid debt claims (e.g., bank deposits, commercial 

https://www.bis.org/cpmi/publ/d202.pdf.

55 See generally Bank for International Settlements Committee on Payments and Markets Infrastructures, 

Developments in Retail Fast Payments and Implications for RTGS Systems, supra note 48 at 2.

56 See Duarte et al., supra note 38; Derryl D’Silva et al., BIS Papers No. 106: The Design of Digital Financial 

Infrastructure: Lessons from India (Dec. 2019), https://www.bis.org/publ/bppdf/bispap106.pdf. 

57 See Financial Stability Board, Enhancing Cross-border Payments: Stage 3 Roadmap (Oct. 13, 2020), https://www.

fsb.org/wp-content/uploads/P131020-1.pdf.

58 See President’s Working Group on Financial Markets, the Federal Deposit Insurance Corporation, and the 

Office of the Comptroller of the Currency, Report on Stablecoins (Nov. 2021), https://home.treasury.gov/system/

files/136/StableCoinReport_Nov1_508.pdf [hereinafter “PWG Report”]. 

59 Stablecoin redemption rights can also vary considerably, in terms of both who may present a stablecoin to an issuer 

for redemption and whether there are any limits on the quantity of coins that may be redeemed. Id.

Money and payments 

16
paper, or sovereign debt) or other digital assets.60 “Algorithmic” stablecoins purport to rely, in 

whole or in part, on automated adjustments or incentives for market participants to, at least 

theoretically, cause the stablecoin to maintain parity with its pegged asset. In addition to the 

issuer of the stablecoin, other intermediaries may be important to a stablecoin’s functioning. 

For example, stablecoin users, like other digital asset users, may rely on a custodial wallet 

provider to hold the cryptographic keys associated with their stablecoins and facilitate the 

transmission and exchange of stablecoins. In addition, stablecoins may also rely on market 

stabilization mechanisms to keep the price of the stablecoin close to or at the pegged value, 

such as encouraging trading by market participants.

While today stablecoins are primarily used to facilitate trading, lending, or borrowing of other 

digital assets, proponents believe that stablecoins could become used widely as a means 

of payment by households and businesses, as well as offering some improvement to the 

efficiency of cross-border payments by reducing the number of intermediaries in a payment 

chain. However, poorly designed or inadequately regulated or supervised stablecoin arrangements – including both issuers and custodial wallets – may introduce or amplify risks to the 

financial system, consumers and investors, and illicit finance. Appropriate regulation and 

oversight of stablecoins and stablecoin arrangements is necessary to address these risks.61 

Some stablecoins lack reliable means – for example, due to insufficient or illiquid reserves 

or design flaws – to maintain a stable value.62 Failure of a stablecoin to maintain a stable 

value, or loss of confidence in a stablecoin’s ability to maintain a value, could result in a run. 

Stablecoins, including algorithmic and asset-backed stablecoins,63 have already shown that 

they are vulnerable to runs. Runs can have spillover effects on digital asset markets and, 

potentially, on the traditional financial system. For example, markets for reserve assets could 

experience dislocations if stablecoin activities were to obtain significant scale and if runs on 

stablecoins were to lead to fire sales of these reserve assets. Exposures could create particularly large vulnerabilities if the asset classes subjected to fire sales are also held by other 

60 There are no standards regarding the composition of stablecoin reserve assets, and the information made publicly 

available regarding the issuer’s reserve assets is not consistent across stablecoin arrangements as to either its content 

or the frequency of its release. Id. 

61 See, e.g., PWG Report, supra note 58, recommending changes to the regulatory framework for stablecoins to address 

prudential risks. See also FSB, Regulation, Supervision and Oversight of “Global Stablecoin” Arrangements (Oct. 

13, 2020), https://www.fsb.org/2020/10/regulation-supervision-and-oversight-of-global-stablecoin-arrangements/.

62 See, e.g., Gary B. Gorton & Jeffrey Y. Zhang, Taming Wildcat Stablecoins (Sept. 30, 2021, forthcoming, Univ. of Chicago 

L. Rev.), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3888752.

63 See, e.g., Paul Tierno, Andrew P. Scott & Eva Su, Algorithmic Stablecoins and the TerraUSD Crash, CRS Insight

(May 16, 2022), https://crsreports.congress.gov/product/pdf/IN/IN11928; Austin Adams & Markus Ibert, 

Runs on Algorithmic Stablecoins: Evidence from Iron, Titan, and Steel, FEDS Notes (June 2, 2022), https://

www.federalreserve.gov/econres/notes/feds-notes/runs-on-algorithmic-stablecoins-evidence-from-iron-titan-and-steel-20220602.htm; Robert Hart, Tether Untethered: World’s Biggest Stablecoin Loses $1 Peg As 

Crypto Market Crashes, Forbes (May 12, 2022), https://www.forbes.com/sites/roberthart/2022/05/12/

tether-untethered-worlds-biggest-stablecoin-loses-1-peg-as-crypto-market-crashes/?sh=593ecabb1cec. 

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17
financial institutions that may be subject to runs, such as money market mutual funds, or if 

a run on a stablecoin were, in some way, to put pressure on a traditional financial institution 

holding the stablecoin’s reserve assets.

Today, stablecoins usually use a combination of blockchain technology and market intermediaries to process payments and transfer ownership of the digital asset.64 For transactions 

recorded on a distributed ledger, payments are initiated when the payor broadcasts the 

details of the intended transaction to validators. Validators then verify the validity of the 

transactions before the transactions are appended to the record of previous transactions 

and settled. In a permissionless blockchain, anyone can serve as a transaction validator; in a 

permissioned blockchain, the ability to validate transactions is limited to a group authorized 

by the operators of the system. 

The design and functionality of the distributed ledger and the governance of the stablecoin 

arrangement have implications for the speed and reliability of transfers in ownership. 

For example, many stablecoins currently in circulation are developed on permissionless 

blockchains. In permissionless blockchains, the reward for validating legitimate transactions 

must be sufficiently high to incentivize validators to validate legitimate, and only legitimate, 

transactions. These incentive structures may result in congestion or high fees.65 By contrast, 

permissioned blockchains may be less prone to congestion problems but might limit some 

of the functionalities present in permissionless blockchains. Other stablecoin ownership 

transfers are recorded “on the books” of an intermediary, such as a custodial wallet.66 In 

other respects, stablecoins face many of the same basic risks as traditional payment systems, 

including credit risk, liquidity risk, operational risk, risks arising from improper or ineffective 

system governance, and settlement risk. 

With respect to AML/CFT considerations, stablecoins are generally not distinct from other 

digital assets, and financial institutions that deal in stablecoins are subject to AML/CFT 

obligations. However, if a stablecoin was widely adopted globally as a means of payment, the 

stablecoin could pose greater risks for illicit finance due to uneven implementation of global 

AML/CFT standards for digital assets. The liquidity of a widely adopted stablecoin could 

also make it attractive to criminals and the design of a stablecoin arrangement (e.g., use of 

permissioned blockchain) could affect the implementation of AML/CFT requirements. Both 

possibilities would heighten the importance of effective implementation of global AML/CFT 

regulation and supervision of digital assets to mitigate the illicit finance risks. 

64 See generally PWG Report, supra note 58.

65 See Frederic Boissay, Giulio Cornelli, Sebastian Doerr and Jon Frost, BIS Bulletin No. 56: Blockchain scalability and the fragmentation of crypto, https://www.bis.org/publ/bisbull56.pdf. 

66 Digital “wallets” provide a variety of services to users, including facilitating the transfer of stablecoins between users. A 

“custodial wallet provider” is a wallet provider that users may rely on to hold stablecoins on their behalf. Wallets which 

can offer certain benefits but also introduce risks if appropriate safeguards are not in place.

Money and payments 

18
III. Potential U.S. CBDC design choices

A CBDC is a digital form of a country’s sovereign currency.67 In the United States, the existing 

forms of sovereign currency are deposits held by banks and selected financial institutions at 

the Federal Reserve (reserve balances) and Federal Reserve Notes (paper currency). A CBDC 

would have three core features. First, CBDC would be legal tender. Second, CBDC would 

be convertible one-for-one into reserve balances or paper currency. And third, similar to 

transfers of reserve balances over Fedwire or the FedNow Service, or payments with paper 

currency, CBDC would clear and settle with finality nearly instantly.68

This section reviews selected design choices for CBDC, including features of the CBDC 

instrument, intermediaries, and the payment system.69 While some features are inherent 

to any CBDC, there are critical design choices that may influence the adoption and use of 

CBDC.70 In addition, a distinction can be drawn between wholesale and retail CBDC both 

in their use cases and design, with wholesale CBDC intended for banks and other financial 

institutions, and retail CBDC intended to be accessed and used by a wide range of consumers 

and businesses.71 That said, certain design features and questions related to the underlying 

infrastructure of CBDC may blur these distinctions to some degree. 

Money

Wholesale CBDC could be designed for large-value financial transactions. A natural use case 

for wholesale CBDC would be for large-value payments, analogous to how reserve balances 

are transferred over Fedwire. A CBDC could also be the cash leg of a range of market transactions, including repurchase agreements or securities purchases, instead of bank deposits 

or reserve balances. If provided access, nonbanks could also settle financial contracts in 

CBDC and wholesale borrowing contracts could integrate CBDC. A CBDC could serve as a 

settlement asset for “digital clearinghouses,” which could convert one type of digital asset 

into another, with the CBDC acting as a highly liquid bridge between assets.72

67 There may be other forms of digital sovereign currency. Consistent with the Executive Order, this report focuses on 

CBDC specifically. As discussed further in Section III, the ways in which a consumer may interact with a CBDC can vary 

depending on particular design choices.

68 See generally Board of Governors of the FEDERAL RESERVE SYSTEM, Service Details on Federal Reserve, Actions to 

Support Interbank Settlement of Instant Payments, 85 Fed. Reg. 48522 (Aug. 11, 2020).

69 This section discusses the policy implications of various potential features and should not be read to make any determinations on the technological feasibility of these features. For more consideration about technical design choices, 

see the Office of Science and Technology Policy’s Technical Evaluation for a U.S. Central Bank Digital Currency System.

70 The Federal Reserve outlined four key design features for U.S. CBDC: privacy-protected, intermediated, widely transferable, and identity-verified. See FRB Money & Payments, supra note 6 at 13. Broadly, the discussion in this section 

supports these features. 

71 As discussed below (“Intermediaries”), a retail CBDC could use a two-tier structure in which intermediaries onboard 

and manage payments while the central bank records account balances. 

72 See Bank for International Settlements Committee on Payments and Market Infrastructures, Central bank 

digital currencies 8 (March 2018), https://www.bis.org/cpmi/publ/d174.pdf. 

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Potential U.S. CBDC design choices

19
A retail CBDC could be designed as an alternative to payments using cash, checks, credit 

or debit cards, or ACH. For example, a retail CBDC could substitute for cash in low-value 

transactions, to the extent that it is more convenient, less prone to loss or theft, or has other 

features preferred by users. It could also be used instead of credit or debit card substitutes 

for purchases online, automated bill payment, or other financial transactions. In these 

settings, users could value an instrument that is a central bank liability and is continuously 

available. Businesses might choose retail CBDC over ACH, instant payments or wires for 

business-to-business payments, payroll, or other financial transactions. CBDC design 

features that users may value in these settings include flexibility, safety, security, reversibility, 

and verifiability. 

A key question is whether CBDC would pay interest. In particular, the Federal Reserve 

could consider whether wholesale U.S. CBDC would pay interest, as reserve balances do.73 

The level of interest paid would affect wholesale U.S. CBDC’s substitutability with reserve 

balances or other Federal Reserve liabilities. Paying interest could also encourage adoption 

at the introduction of CBDC. If the rate paid was in line with market rates, in normal times, 

wholesale CBDC could crowd out the production of potentially risky forms of private money, 

such as money issued by non-bank intermediaries, supporting financial stability. That said, a 

wholesale CBDC that paid interest could attract destabilizing inflows during stress, and so the 

rate may need to adjust downwards to minimize these flows. 

A retail CBDC could also pay interest. Although paper currency does not pay interest, bank 

deposits often do. The retail bank deposit rate is often significantly lower than the relevant 

policy rate and “sticky”; as policy rates rise, deposit rates often follow sluggishly upwards.74 

In theory, if an interest-bearing CBDC was viewed as a close substitute for bank deposits in 

terms of the use cases they support, deposit and lending rates might increase. That said, 

there may be practical considerations that limit this pass-through. As with wholesale CBDC, 

any interest paid on retail CBDC might need to adjust to minimize destabilizing flows. 

Payment system

At its core, a CBDC system would need to support instant settlement. In addition, the system 

would need to have appropriate cybersecurity incident management, contingency plans, and 

continuity plans to ensure availability of its functionalities, including during natural disasters 

73 The Federal Reserve published a discussion paper in January 2022 titled Money and Payments: The U.S. Dollar in 

the Age of Digital Transformation. The paper discussed and sought comment on a variety of policy considerations 

related to a CBDC, including implications for the implementation of monetary policy. Interest paid on Federal Reserve 

liabilities is one aspect of monetary policy implementation that should be considered. See FRB Money & Payments,

supra note 6 at 21.

74 See John C. Driscoll & Ruth A. Judson, Sticky Deposit Rates, (working paper, Federal Reserve Board Finance & 

Economics Discussion Series No. 2013-80), https://www.federalreserve.gov/pubs/feds/2013/201380/201380pap.pdf; 

Itamar Drechsler, Alexi Savov & Philipp Schnabl, The Deposits Channel of Monetary Policy, 132 Q. J. Econ. 1819 (2017). 

Potential U.S. CBDC design choices 

20
and foreign attacks. When problems are discovered in CBDC functionality, there would be a 

clear process and adequate support for mitigating and resolving those problems. A CBDC 

system would also have to support mitigation of money laundering and terrorist financing 

risks, as well as anti-fraud measures, sufficient to overcome the risk of providing a highly 

liquid and price-stable instrument, assuming that it is available in large quantities and that it 

settles instantaneously. 

Beyond these core features, the system could also facilitate the use of transaction programmability, to allow for additional functionality of money. For example, payroll, government, or 

bill payments could be automated using CBDC, similar to how ACH works today, or new functions could be designed to facilitate micro and machine-to-machine payments. However, 

programmability could add additional risks to users (e.g., if there are bugs in the code that 

support the contracts or if consumers find it more difficult to stop payments or modify their 

agreements) and, therefore, any use of programmability should be carefully evaluated to 

ensure that these risks can be sufficiently mitigated. 

A range of system designs could facilitate wholesale CBDC functions that would extend 

beyond those offered by traditional payment systems. Similar to Fedwire, final settlement 

could occur on a gross basis with instant finality, but a U.S. CBDC could be developed that 

would not have the current limitations in transaction timing based on Fedwire operating 

hours. Depending on the design features and intermediary structure, wholesale CBDCs may 

be able to facilitate settlement in systems or environments outside of this closed system. 

Wholesale CBDC could facilitate the final settlement of retail payment systems and also allow 

for smoother overall intraday liquidity management.

In terms of the underlying infrastructure, retail and wholesale CBDC could run on centralized 

payment systems or distributed ledger technology (DLT) for processing payments. Because 

CBDC is a riskless liability of the central bank, current technology suggests that CBDC would 

be transferred on a system administered by the central bank. Technological developments 

such as DLT could enable a variety of models with roles for specialized intermediaries to initiate, process, and execute CBDC payments. DLT-based systems could be both permissioned, 

meaning the network of nodes that verify or commit transactions would be pre-approved 

entities, or permissionless, where any entity with the requisite technology and capacity could 

act as a node. However, a permissionless system could introduce distributed governance 

and would present substantial risk for a CBDC, such that a central bank would be unlikely to 

adopt it.75 

75 For a discussion of similar issues, see Federal Reserve Bank of Boston, Project Hamilton Phase 1 Executive Summary, 

https://www.bostonfed.org/publications/one-time-pubs/project-hamilton-phase-1-executive-summary.aspx. 

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A U.S. CBDC could be designed to interoperate with foreign CBDCs to support and enhance 

cross-border payments. Systems could have varying levels of interoperability including separate but compatible CBDC systems that share common technical standards and alignment 

in their legal and regulatory frameworks, common user interfaces or clearing mechanisms 

that are jointly designed and developed or adopted across jurisdictions, or jointly operated 

and governed multi-CBDC systems. Research and experimental work have demonstrated 

the potential for interoperable CBDC systems to complete international transfers and foreign 

exchange operations in seconds, compared to the days typically required for cross-border 

payments processed and settled through correspondent banking networks.76 

Achieving any of these models of interoperability would require advance cooperation 

between jurisdictions during the development phase to establish common standards and 

legal frameworks. As with other payment systems, higher levels of interoperability can 

introduce counterparty, operational, and cyber risks. Interoperability between central-bank 

operated payment systems is relatively uncommon today due to the risks and technical 

complexity, as well as considerations related to jurisdictions’ economic governance, rule of 

law, national security, and the need to align regulations such as data protection and privacy 

standards, AML/CFT regimes and the enforcement of sanctions. These governance challenges would also exist for new cross-border payment systems developed using CBDCs. 

CBDC ledger design could have significant implications for user privacy, cybersecurity, and 

illicit finance risks. In a system with a publicly visible ledger, user information could be 

pseudonymously recorded on the ledger, but with the passage of time and accumulation of 

transaction data, transactions might be attributed to individual users; therefore, a publicly 

visible ledger may result in reduced user privacy. A CBDC ledger could collect significant 

amounts of information and, without appropriate safeguards, would pose privacy risks and 

could be a target for cyber attacks. Finally, the ledger design would also affect the degree of 

illicit finance risk, based on the degree of transparency into the ledger and whether the nodes 

in a decentralized system are pre-approved entities. 

Intermediaries

There are two general architectures for CBDC intermediation: (1) a single-tier (i.e., direct) 

CBDC with the central bank, and (2) a two-tier CBDC where intermediaries (potentially banks 

or nonbank financial intermediaries) would onboard and manage payments while the central 

bank records account balances. Under either approach an end user’s CBDC holdings would 

76 For example, the Bank for International Settlements Innovation Hub’s Project mBridge designed a prototype that 

demonstrated that ability to effect cross-border transfer in seconds. See Bank for International Settlements, 

Inthanon-LionRock to mBridge: Building a Multi CBDC Platform for International Payments, https://www.bis.org/publ/

othp40.htm. 

Potential U.S. CBDC design choices 

22
represent a direct claim against the central bank. However, considerations for these general 

architectures may differ according to wholesale or retail CBDC. 

In a single-tier model for retail CBDC, the central bank would issue CBDC and interact directly 

with the public. The central bank would be responsible for all AML/CFT obligations, including 

transaction monitoring, filing suspicious activity reports, and customer due diligence. The 

AML/CFT obligations associated with holding these accounts would result in a government 

entity having access to customer due diligence and transaction information for all U.S. CBDC 

transactions, which would represent a significant expansion of the U.S. government’s access 

to financial data and should be carefully considered. This model would also raise novel 

challenges for AML/CFT supervision, as another supervisory body would need to monitor the 

central bank’s own AML/CFT compliance. This model also could have implications for credit 

creation, as discussed further in Section IV. 

A more feasible model in the United States for intermediating a retail U.S. CBDC would 

be a two-tiered system, which is in line with what the majority of jurisdictions globally are 

considering.77 Under this model, the Federal Reserve would issue and redeem U.S. CBDC, 

but the distribution of U.S. CBDC would be handled by intermediaries eligible for an account 

at the Federal Reserve and payment services would be managed by intermediaries and 

other private sector participants. This would be similar to how paper currency is distributed 

through commercial banks. It also shares similarities to responsibilities surrounding noncash 

retail payments today: the intermediaries onboard, provide customer support, and manage 

payments. In addition, intermediaries would likely implement AML/CFT obligations, while 

relevant supervisors would monitor compliance with those obligations. 

Both banks and nonbank financial intermediaries could support a wholesale CBDC. In a 

bank-based system, banks would provide all intermediation services. In a hybrid system, 

nonbanks could also provide custodial or wallet services. Banks could provide a settlement 

layer that interacts directly with the central bank, and nonbanks could provide an interface 

to other financial institutions for the holding or transfer of wholesale CBDC. In all cases, 

intermediaries would need to ensure availability of wholesale CBDC, as well as a high degree 

of security and resilience. 

There could be institution holding limits on wholesale CBDC. A range of characteristics of 

the intermediary could determine holding limits, including the size of an intermediary, other 

business lines of the intermediary, supervisory concerns, or operational considerations. 

There could also be more general factors, such as the degree to which U.S. CBDC outstanding 

77 A BIS survey question showed that more than 70 percent of central banks engaged in some form of CBDC work are 

considering a two-tiered model. Anneke Kosse & Illaria Mattei, BIS Papers No. 125: Gaining Momentum – Results of 

the 2021 BIS Survey on Central Bank Digital Currencies 5 (May 2022), https://www.bis.org/publ/bppdf/bispap125.

pdf.

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Potential U.S. CBDC design choices

23
displace other liabilities on the Federal Reserve’s balance sheet, the size of Federal Reserve 

intermediation relative to overall private intermediation, or effects on broader financial 

markets, including the market for Treasury securities. These limits could change in times of 

stress. In particular, the Federal Reserve might opt to place limits on institutional holdings if 

flows into wholesale U.S. CBDC appeared to be destabilizing to broader money or financial 

markets. 

Beyond these two architectures for core features, a range of intermediation models could 

apply. Consumers could hold retail CBDC in digital wallets, similar to some private digital 

assets and nonbank payments services. Wallets could allow users to convert between 

CBDC and commercial bank money or hold CBDC alongside other digital assets, promoting 

convenience and flexibility. The wallets could provide payment verification services as well, 

particularly for larger-value transactions. Data structures and regulatory frameworks could 

be established to promote consumer privacy and, as appropriate, additional standards for 

reversibility or error mitigation. 

The scope of the intermediary base could also promote equity and financial inclusion. For 

example, enabling a range of banks as well as potentially nonbank financial institutions to 

provide wallets could provide the unbanked and the underbanked with greater options for 

access. A larger intermediary base could also promote competition and amortize fixed costs.

Potential U.S. CBDC design choices 

24
AML/CFT controls and CBDC 

As with any financial asset, CBDCs could be used by criminals, including terrorists, for 

illicit activity. Design choices of a CBDC, to include the user base, technological design, 

data collection, and the scope of usage, would affect the illicit finance risks posed by a 

CBDC. As part of CBDC design, relevant authorities and supervised intermediaries would 

need to assess the risks and ensure that appropriate controls are in place to mitigate 

those risks. For example, the illicit finance risk posed by a wholesale CBDC, in which the 

only users are banks and possibly other financial institutions already subject to AML/CFT 

obligations, would be lower than a retail CBDC with which consumers and businesses 

conduct financial activities.

The potential uses of a CBDC could also impact the illicit finance risk. For example, a 

retail CBDC used for low value, retail transactions or peer-to-peer transfers could be 

abused by illicit actors looking to transfer smaller amounts of funds that may not trigger 

transactions monitoring systems or meet the threshold for certain AML/CFT requirements. 

In addition, the more readily that CBDCs can be used for cross-border transactions, the 

higher the values a CBDC will support, and the more rapidly transactions take place, 

especially to high-risk jurisdictions, the more risk it is likely to entail. Other critical factors 

may include the extent to which user data is usable by and available to investigators, the 

types of intermediaries that can distribute the CBDC, the extent to which users are subject 

to and the scope of a customer due diligence process, and whether velocity or amount 

limits exist. 

AML/CFT obligations and supervision: 

In a two-tiered CBDC, intermediaries would be responsible for implementing all AML/CFT 

and sanctions obligations, including customer verification, transaction monitoring, record 

keeping, and the filing of Suspicious Activity Reports (SARs). Regulators would also be 

responsible for supervising the intermediaries’ compliance with AML/CFT requirements, 

just as they currently are. Depending on the technical aspects of a CBDC, regulators may 

need additional training, expertise, or resources to adequately supervise intermediaries’ 

compliance with relevant AML/CFT obligations. Additional guidance may be necessary 

for the industry to understand how to effectively design and implement an AML/CFT 

program for CBDC. 

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Potential U.S. CBDC design choices

25
User identification and privacy

While physical cash can enable anonymous transactions, a CBDC could potentially be 

used at much greater scale and velocity, because it would not be subject to the practical 

limitations of paper money. Therefore, anonymity in a CBDC system could present 

greatly expanded money laundering, proliferation financing, and terrorist financing risks 

compared to physical cash. These risks could be more easily mitigated in an identityverified system, in which intermediaries collect and verify customer information. Other 

strategies, including zero knowledge proofs, could also be explored. A CBDC could 

also have tiered accounts to allow for different functionality, tied to different levels of 

identity verification and monitoring. Controls could be embedded into the design of any 

tiered system to enable intermediaries to identify instances of structuring designed to 

avoid compliance thresholds. Tiered accounts could enable customers without identity 

credentials, who are often unable to access traditional financial services, to access 

CBDC. While models that allow different levels of identity verification and monitoring 

could reach wider user bases and do more to promote inclusion than accounts requiring 

full customer due diligence, they would need to be carefully assessed and calibrated to 

appropriately mitigate the illicit financing risks. In addition, a tiered model would need to 

regularly assess the illicit finance risks and, if necessary, change the tiering to adapt to an 

ever-changing risk environment. 

A CBDC can be designed to incorporate technological innovations to both enable useridentification and maximize privacy protections for users. For example, data collected 

should be protected from unlawful access. A CBDC could also incorporate trustworthy78

and effective digital identity solutions that include the necessary safeguards to minimize 

fraud, while also reducing incentives for fraudsters and hackers to steal and misuse 

personally identifiable information. A CBDC could also leverage privacy-enhancing 

technologies to combat illicit finance, promote inclusion, and preserve privacy.79

78 “Trustworthy” digital identity is shorthand for technology and infrastructure with built-in safeguards and regulatory policies to address privacy, civil liberties, equity and other concerns. Trustworthy digital identity solutions are 

optional and voluntary, consent based, privacy preserving, inclusive, equitable, secure, accurate and resilient, allow 

consumer choice, convenient, and are subject to appropriate technical standards, trust frameworks, and governance. 

79 For example, in August 2020 the U.S. and U.K. governments launched a prize challenge on privacy enhancing technologies. See The White House, U.S. and U.K. Launch Innovation Prize Challenges in Privacy-Enhancing Technologies 

to Tackle Financial Crime and Public Health Emergencies (July 20, 2022), https://www.whitehouse.gov/ostp/news-updates/2022/07/20/u-s-and-u-k-launch-innovation-prize-challenges-in-privacy-enhancing-technologies-to-tackle-financial-crime-and-public-health-emergencies/.

AML/CFT controls and CBDC

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Potential U.S. CBDC design choices 

26
Programmable controls 

A CBDC could also offer valuable new opportunities for improved supervision and AML/

CFT compliance. For example, automated SAR filings for certain potentially suspicious 

activities, such as structuring transactions to avoid reporting requirements, could be 

built-in and thereby reduce the compliance burden on financial institutions. Further work 

would be needed to understand how intermediaries (in an intermediated CBDC) would 

be responsible for developing and managing these controls. At a minimum, standards for 

governance, such as a requirement to provide explanatory information on programmable 

controls to customers, would need to be developed. 

A CBDC with a common interface for intermediaries could also provide opportunities for 

enhanced private sector data sharing and data pooling enabling financial institutions to 

identify patterns and trends in money laundering and terrorist financing and improve 

compliance controls.80 Any data pooling efforts would need to incorporate robust 

data and privacy protections and could seek to incorporate technological innovations 

to enable the identification of trends while minimizing the sharing of customer data. 

Fundamentally, a CBDC system could increase the amount of data generated on users 

and transactions. The collection and storage of this data would pose obvious privacy and 

cyber security risks, but it also could offer opportunities for proper authorities to leverage 

the data in supervision and law enforcement efforts. 

80 See generally FATF, Stocktake on Data Pooling, Collaborative Analytics and Data Protection (July 2021), https://

www.fatf-gafi.org/media/fatf/documents/Stocktake-Datapooling-Collaborative-Analytics.pdf. 

AML/CFT controls and CBDC

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27
U.S. international engagement on digital assets

On July 7, 2022, the Secretary of the Treasury, in consultation with the Secretary of 

State, the Secretary of Commerce, the Administrator of the U.S. Agency for International 

Development (USAID), and the heads of other relevant agencies, delivered to President 

Biden a framework for interagency engagement with foreign counterparts and in 

international fora as directed in the Executive Order.81 The framework is intended to 

ensure that, with respect to the development of digital assets, America’s core democratic 

values are respected; consumers, investors, and businesses are protected; appropriate 

global financial system connectivity, platform and architecture interoperability are 

preserved; and the safety and soundness of the global financial system and international 

monetary system are maintained.

The U.S. Government has been an active participant in international engagement on 

digital asset issues. For example, during the U.S. Presidency of the Financial Action 

Task Force (FATF) from 2018-2019, the United States led the group in developing and 

adopting the first international standards on digital assets.82 Since that time, the 

United States, in coordination with the G7, continues to work with the FATF to monitor 

emerging illicit finance risks, including potential risks emerging from CBDCs. During 

its 2020 G7 Presidency, the United States established the G7 Digital Payments Experts 

Group to discuss CBDCs, stablecoins, and other digital payment issues. In 2021, the G7 

work led to a set of shared policy principles for retail CBDCs that established guidelines 

for jurisdictions in their exploration and potential development of CBDCs.83 Moreover, 

while a country’s CBDC would be issued by its central bank, the infrastructure supporting 

it could involve both public and private participants. This presents opportunities for 

U.S. companies to lead in the development of these technical systems and for the U.S. 

Government, working with G7 partners, to encourage technological development that 

would support a CBDC, if determined to be appropriate, that is consistent with the G7’s 

long-standing public commitments to transparency, the rule of law, and sound economic 

governance.

81 See U.S. Dep’t of the Treasury, Fact Sheet: Framework for International Engagement on Digital Assets (July 7, 2022), 

https://home.treasury.gov/news/press-releases/jy0854. 

82 See FATF, FATF Report to the G20 Finance Ministers and Central Bank Governors on So-called Stablecoins (July 

2020), https://www.fatf-gafi.org/publications/fatfgeneral/documents/report-g20-so-called-stablecoins-june-2020.

html. 

83 G7, Public Policy Principles for Retail Central Bank Digital Currencies (CBDCs) (2021), https://assets.publishing.

service.gov.uk/government/uploads/system/uploads/attachment_data/file/1025235/G7_Public_Policy_Principles_

for_Retail_CBDC_FINAL.pdf. 

Potential U.S. CBDC design choices 

28
In addition to these contributions, the United States remains actively engaged in 

collaborative work on digital assets through multilateral fora and will continue to 

elevate its participation in these bodies. The United States continues work on the G20 

roadmap for addressing challenges and frictions with cross-border payments, including 

on improvements to existing systems, potential impediments from data localization and 

other frictions in data governance frameworks, the international dimensions of CBDC 

designs, and the potential of well-regulated stablecoin arrangements.84 The United States 

actively participates as part of the Financial Stability Board (FSB), which, together with 

the international standard-setting bodies, is leading work on issues related to stablecoins, 

other international dimensions of digital assets and payments, and cross-border 

payments. 

The United States must continue to work with international partners on standards 

for the development of digital payment architectures and CBDCs to reduce payment 

inefficiencies and ensure that any new payment systems are consistent with U.S. values 

and legal requirements. Additionally, the United States will promote the adoption and 

implementation of international standards through bilateral and regional engagements. 

Across all engagements, the United States will seek to ensure a coordinated message, 

limit duplication, and encourage that work is maintained within its primary stakeholders.

84 See Financial Stability Board, supra note 57.

U.S. international engagement on digital assets

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29
IV. Policy considerations 

This section reviews policy considerations related to the introduction of a CBDC. To support 

the assessment of a CBDC that is required by Section 4(b) of the Executive Order, this section 

compares the policy implications of a CBDC with those of two recent innovations, instant 

payments and stablecoins. However, there are potentially significant differences in the 

structure, function, and regulatory status of these products, which provide important context 

for the comparisons below.

The policy considerations discussed in this section are based on the objectives set out in 

the Executive Order and outlined in the Appendix. These considerations relate to four broad 

themes: 

• Building the future of money and payments: The future system of money and 

payments should be efficient, provide a foundation for further technological innovation, achieve a high degree of resilience, and facilitate cross-border transactions. 

• Supporting U.S. global financial leadership: The future money and payment systems should be consistent with the global role of the dollar; enable the enforcement 

of sanctions; and advance democratic values, human rights, and privacy. 

• Advancing financial inclusion and equity: Innovations to payment systems, including a potential U.S. CBDC, should enable access to and preserve choice for a broad set 

of potential consumers and users, particularly for those Americans underserved by 

the traditional banking system.

• Minimizing risks: The system should be consistent with preserving economic growth 

and financial stability, minimize the risk of illicit financial transactions, and be environmentally sustainable. 

Consideration 1: Building the future of money and payments 

Developing a U.S. CBDC could support progress towards goals related to payment system 

efficiency, technological innovation, payment system resilience, and cross-border transaction 

costs. 

Payment system efficiency

The payment system should allow for efficiencies that make payments cheaper, faster, and 

safer, by promoting greater and more cost-efficient access to financial products and services. 

Speed and cost

A CBDC system could be faster than certain existing electronic payment systems, as a CBDC 

could reduce technological frictions by increasing the speed of transactions and ensuring 

Policy considerations 

30
finality.85 Costs of operating a U.S. CBDC would likely be in line with those of comparable 

private sector systems to comply with the Federal Reserve’s policies regarding provision of 

priced services. 86 Even so, some consideration of the costs of developing CBDC, how these 

costs shift with respect to design choices, as well as the time development may take, should 

be noted. 

Transactions using instant payment systems can occur in seconds (or less), but it is possible 

that CBDC could offer even greater throughput. The pricing of instant payment systems to 

participating institutions will depend on the costs of operating the service, plus a private-sector adjustment factor that imputes a profit margin. Pricing of instant payments for consumers 

will depend on competitive dynamics, including the range of institutions that have access 

to instant payment systems. In particular, access to the FedNow Service will be hybrid, with 

banks and nonbank financial intermediaries sponsored by banks as service providers or 

agents.

The speed and efficiency of stablecoins relative to CBDC will depend largely on the stablecoin’s system for transferring ownership. As discussed in Section II, stablecoins rely on a 

variety of different intermediaries and ledger systems. Certain features may make stablecoins 

prone to congestion and high and unpredictable transaction fees. Further, if not subject to 

appropriate regulation and oversight, stablecoins present other risks, including the risk of 

runs. 

Technological innovation

Foundational technology

CBDC would provide a foundation for further innovations in payments by providing a safe 

asset from a trusted source that can be used reliably in digital contexts. For example, a CBDC 

could enable transaction programmability (i.e., being able to add rules into a CBDC system 

such that those rules are executed when predefined conditions are met) or support the 

tokenization of bank deposits or other financial assets. Under one scenario, when a customer 

at Bank 1 uses tokenized deposits to transact with a customer at Bank 2, a wholesale CBDC 

could settle the associated interbank exposures instantaneously and automatically. CBDC 

85 Project Hamilton, an exploratory research project involving the Federal Reserve Bank of Boston and the 

Massachusetts Institute of Technology Digital Currency Initiative, has developed a CBDC architecture capable of processing 1.7 million transactions per second. Lovejoy et al., A High Performance Payment Processing System Designed 

for Central Bank Digital Currencies (White Paper Feb. 3, 2022), https://www.bostonfed.org/publications/one-timepubs/project-hamilton-phase-1-executive-summary.aspx. 

86 As required by the Monetary Control Act of 1980, the Federal Reserve Banks set fees for priced services provided to 

financial institutions. These fees are set to recover, over the long run, all direct and indirect costs and imputed costs, 

including financing costs, taxes, and certain other expenses, as well as the return on equity (profit) that would have 

been earned if a private-sector business provided the services. See Board of Governors of the Federal Reserve 

System, Policies: Principles for the Pricing of Federal Reserve Bank Services, https://www.federalreserve.gov/paymentsystems/pfs_principles.htm. See also 12 U.S.C. § 248a. 

The Future of Money and Payments

Policy considerations 

31
could also allow for nearly instantaneous settlement of a wide range of transactions on a 

24/7/365 basis. 

More generally, code for CBDC could be open source, expanding the pool of developers 

who can review and build on the code base, although open-source code may carry its own 

operational risks that must be considered. Protocols built by such developers could be 

combined to support additional services.87 At the same time, given the need for a CBDC to be 

extremely reliable and stable, it may not be able to experiment with the latest technological 

developments as fast as the private sector could. 

Instant payment systems could also support further innovation in payments, particularly if 

new entrants that are able to provide innovative services to their clients participate directly 

in these systems. However, it is not clear that instant payment systems will support the same 

range of use cases as a CBDC. Stablecoins may support technological innovation in payments, including cross-border payments. At the same time, these benefits may be limited or 

offset if stablecoins remain vulnerable to runs, use blockchains that are prone to congestion, 

or are more prone to cyber and operational risks. 

Public-private partnership

The payment system should support innovations from the public and private sectors to meet 

the various public policy goals of the United States. In turn, innovations from partnerships 

could provide building blocks for other technologies, similar to how the internet was first 

introduced as a public-sector initiative.88 Current payment systems, including ACH, have also 

benefitted from public-private sector cooperation, particularly with respect to incorporating 

new functionality and standard setting.89 

Both CBDC and instant payments could benefit from public-private collaboration. For example, CBDC systems could allow for composability with private sector-developed applications, 

while instant payment systems could support integration with private sector-developed 

services. 

Payment system resilience

A payment system is resilient if it functions reliably, is capable of handling high user and 

transaction loads, is well-protected against cyber and operational risks, and can resume 

normal functioning quickly after a disruption. 

A CBDC should aim to be secure and functional in a range of environments, both at initial 

deployment and over its life cycle. As a public good, a CBDC could be uniquely positioned to 

87 See Bank for International Settlements, supra note 36 at 94.

88 See generally Katie Hafner, Where Wizards Stay up Late (1999).

89 The National Automated Clearing House Association (NACHA) brings together public and private ACH system representatives to set standards and policies. See generally NACHA, About Us, https://www.nacha.org/content/about-us. 

Policy considerations 

32
have functionality in natural disasters or other adverse circumstances, and offline capabilities 

could help to sustain commerce under these scenarios, where “offline” is here defined as 

the ability to execute a CBDC transaction without internet access. In addition, because it is 

publicly provided, CBDC would be designed in ways to account for potential externalities 

generated by a payment system. As such, it might provide broader protections against cyber 

or operational risks than a privately operated payment system would. However, a CBDC also 

would be a target for cyber attackers and, therefore, would need extensive cybersecurity 

protection and its design would need a robust incident response program in case of a 

compromise.90

In general, payment systems, including instant payment systems and stablecoins, should 

consider security and resilience when they incorporate new design features.91 Potential 

stablecoin vulnerabilities include coding bugs in the smart contracts that support the 

stablecoin, security issues related to the keys used to mint and burn stablecoins, and in the 

blockchain-based applications to which users deploy them.92

Cross-border

CBDCs could also present an opportunity to rethink the international payment system. 

Adopting common technical standards and legal frameworks could reduce frictions in 

cross-border payments. Research and experimental work on cross-border multilateral CBDC 

systems have suggested the potential for platforms to facilitate peer-to-peer CBDC payments 

on a payment-versus-payment basis, which could reduce settlement risk and increase the 

settlement speed of cross-border payments and foreign exchange transactions.93 

There are some countervailing considerations, however. As noted, high levels of interoperability between CBDCs could introduce counterparty, operational, and cyber risks. 

Governance of a multi-CBDC system could also prove extremely challenging due to challenges in addressing misaligned or conflicting policy objectives in different jurisdictions and 

evolving regulations, including data protection and privacy standards, AML/CFT regimes, and 

the enforcement of sanctions imposed by participating jurisdictions. 

Instant payment systems would not be interoperable on a global scale initially, although 

work is underway to facilitate fast payment system interoperability. By reducing the number 

90 See generally Darrell Duffie, Thierry Foucault, Laura Veldkamp & Xavier Vives (2022), Technology and Finance, chapter 

2, in The Future of Banking 4 (2022), https://www.iese.edu/faculty-research/initiatives/banking/. 

91 See generally Tanai Khiaonarong, Harry Leinonen & Ryan Rizaldy, Operational Resilience in Digital Payments: 

Experiences and Issues (Dec. 10, 2021), IMF Working Papers (Dec. 2021), https://www.elibrary.imf.org/view/journals/001/2021/288/article-A001-en.xml. 

92 See Neha Nerula, The Technology Underlying Stablecoins (Sept. 23, 2021), https://nehanarula.org/2021/09/23/stablecoins.html. 

93 See Bank for International Settlements, Multiple CBDC (mCBDC) Bridge, https://www.bis.org/about/bisih/topics/

cbdc/mcbdc_bridge.htm. 

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Policy considerations 

33
of intermediaries involved in cross-border payments, appropriately designed stablecoin 

arrangements could also offer similar cross-border payments benefits. 

Consideration 2: Supporting U.S. global financial leadership 

The United States has a strong national interest in reinforcing its global financial leadership. 

Role of the dollar

Some observers have suggested that a U.S. CBDC is needed to preserve U.S. global financial 

leadership and the role of the dollar because the potential efficiencies created by foreign 

CBDCs will create competition for the dollar, undermining its global use. However, the 

prominence of the dollar reflects factors beyond payment system efficiency. These factors 

include the United States’ strong economic performance; sound macroeconomic policies 

and institutions; open, deep, and liquid financial markets; institutional transparency; commitment to a free-floating currency; and strong and predictable legal systems.94 

In the near term, foreign CBDCs and private digital assets by themselves likely offer little new 

competition to the dollar beyond traditional foreign fiat currency, particularly because they 

do not address the structural factors above. Additionally, to be broadly adopted, a foreign 

CBDC or a private digital asset would require interoperability with other payment systems or 

wide use for payments in other jurisdictions; it would also require deep liquidity to act as a 

medium for cross-currency settlement. 

Nonetheless, the United States should still consider the long-term proposition of a digital 

future where financial and commercial decisions are tied more closely to technological 

efficiency and convenience. The emergence of new payment system technologies, tokenized 

assets, and programmable and automated financial sector activities may support the need 

for a tokenized version of the dollar. 

Fiat based stablecoin demand will largely be driven (or limited) by the underlying fiat currencies’ characteristics. Stablecoins could affect demand for dollars globally. The magnitude 

and consequences of these changes depend on a range of factors, including the demand 

for stablecoins globally, assets backing stablecoins, and regulatory framework(s) applied 

to stablecoins in the United States and abroad. Cross-border use of stablecoins could also 

introduce unintended spillover risks. 

Sanctions and other financial measures

The United States uses sanctions and other financial measures to address national security 

threats and deny criminals and other illicit actors access to the U.S. and international 

94 See U.S. Department of the Treasury, Report to Congress: Macroeconomic and Foreign Exchange Policies 

of Major Trading Partners of the United States 19 (Dec. 2021), https://home.treasury.gov/system/files/206/

December-2021-FXR-FINAL.pdf. 

Policy considerations 

34
financial systems.95 The effectiveness of these tools rests in part on the strength and centrality 

of the U.S. financial system and currency as well as coordination with allies and partners to 

magnify economic and political impact. 

Foreign CBDCs, stablecoins, and private-sector-issued digital assets could provide new 

avenues for bad actors, such as terrorist financiers, money launderers, and governments 

proliferating weapons of mass destruction, to fund and conduct illicit activities and evade 

U.S. sanctions. Foreign CBDC systems could be designed to operate outside of an integrated 

international financial system, such as a bilateral payment mechanism, thus making it easier 

for rogue actors or countries that are subject to sanctions or disagree with U.S. sanctions 

policy to avoid U.S. jurisdiction by not dealing in U.S. dollars, with U.S. persons, or with 

persons otherwise subject to U.S. jurisdiction. The marginal use of a cross-border payment 

system created in support of one or more foreign CBDCs, particularly if issued by countries 

that do not share U.S. values and national security goals, could help actors to circumvent U.S. 

policy tools. 

In the near term, a U.S. CBDC is not necessary to preserve effectiveness of sanctions. 

Fundamentally, the effectiveness of U.S. sanctions relies on the central role of the U.S. dollar 

and U.S global financial services and leadership. As previously stated, neither foreign CBDCs 

nor private-sector issued digital assets are likely to have a significant impact on either of 

these factors in the near term. Over time, however, it is possible that a U.S. CBDC could help 

to maintain U.S. leadership in the international financial system, and thereby contribute to 

preserving the effectiveness of sanctions and other financial measures to address threats to 

the national security, foreign policy, and economy of the United States. In addition, individuals or entities transacting or holding a U.S. CBDC could be subject to U.S. jurisdiction and 

thereby subject to U.S. sanctions. 

Moreover, any financial institution participating in U.S. instant payment systems will be 

required to adhere to U.S. sanctions, and so these systems are not expected to meaningfully 

change the efficacy of U.S. sanctions. To the extent that stablecoins increase demand for 

dollars globally, and depending on the design and compliance with sanctions obligations, 

stablecoin arrangements could help preserve the efficacy of sanctions in the long term. While 

stablecoins backed by assets that are not denominated in dollars may be issued by financial 

institutions that do not hold dollar-based reserves or are not U.S. persons, other involved 

financial institutions may have U.S. sanctions obligations. 

95 See generally U.S. Department of the Treasury, The Treasury 2021 Sanctions Review (Oct. 2021), https://home.

treasury.gov/system/files/136/Treasury-2021-sanctions-review.pdf; U.S. Department of the Treasury, Fact Sheet: 

Overview of Section 311 of the USA PATRIOT Act (Feb. 2011), https://home.treasury.gov/news/press-releases/tg1056. 

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Policy considerations 

35
Democratic values, human rights, and privacy

Payment systems, including a potential CBDC, should be designed in a manner consistent 

with democratic values, human rights, and privacy. Some countries may seek to leverage 

new payment systems or CBDCs to surveil citizens and possibly non-citizens, exert influence 

or pressure on political opponents, or control economic activity. Privacy considerations 

may be especially pronounced for communities hesitant or unable to engage in the existing 

financial system, and for certain types of transactions that may present political or social risks 

to individuals; specifically, members of disenfranchised communities and political activists.

To promote privacy and human rights globally and to aid in adoption, CBDC should prioritize 

privacy and minimize the amount of transaction and personally identifiable information 

collected by the central bank. The system design, deployment, and maintenance should 

adhere to privacy engineering and risk management best practices, including disassociability, 

the principle of least privilege, and data minimization.96 Technological innovations, such as 

privacy-enhancing technologies and zero-knowledge proofs, could increase functionality 

while maintaining additional privacy protections. The United States could consider prioritizing research and development in privacy-enhancing technologies as a critical component of 

U.S. CBDC technological research. 

Along with these design considerations, a CBDC system should have a governance structure 

that applies to both the central bank and intermediaries, that includes consumer protections 

to prevent the disclosure of consumer financial information and protect the user from undue 

government scrutiny. The central bank and any third-party intermediaries should provide 

public guidance to users about how any financial information that must be collected will 

be used and protected. These governance features should be in line with U.S. government 

privacy standards.97 Depending on design, a CBDC could present particularly pronounced 

concerns about the federal government’s access to sensitive private information and the 

development of a U.S. CBDC may warrant the reevaluation of existing privacy standards and 

emphasize the importance of research into privacy enhancing technology. 

Whether or not the United States adopts a U.S. CBDC, other countries may choose to do 

so. Consistent with the framework outlined in the Executive Order, the United States has an 

interest in ensuring that such systems are aligned with the principles of privacy, human rights, 

and other democratic values. As noted in our framework, the U.S. government is actively 

engaged internationally to promote the development of digital asset and CBDC technologies 

96 NIST defines the principle of least privilege as follows: “a security architecture should be designed so that each 

entity is granted the minimum system resources and authorizations that the entity needs to perform its function.” 

Michael Nieles, Kelly Dempsey & Victoria Yan Pillitteri, NIST Special Publication 800-12 Rev. 1: An Introduction to 

Information Security, https://nvlpubs.nist.gov/nistpubs/SpecialPublications/NIST.SP.800-12r1.pdf.

97 See generally The Privacy Act of 1974, 5 U.S.C. 552a et seq.; Gramm-Leach-Bliley Financial Services Modernization Act, 

15 U.S.C. §§ 6801 et seq.

Policy considerations 

36
consistent with our values and legal requirements and to adapt, update, and enhance adoption of global principles and standards for how digital assets are used and transacted. 

The privacy considerations implicated by instant payment systems would be similar to those 

presented by other bank-intermediated systems, whereby banks are required to protect 

customer data from disclosure. In some cases, stablecoin transactions are recorded on a 

public distributed ledger. Given advances in blockchain analytics technology, this public 

aggregation of transactions could present risks to privacy. 

Consideration 3: Advancing financial inclusion and equity

Promoting financial inclusion and equity are key goals of U.S. economic policy.98 Financial 

inclusion and equity may be achieved by expanding equitable access to financial services, 

particularly for those underserved by the traditional banking system, promoting greater and 

more cost-efficient access to financial products and services, ensuring that the benefits of 

financial innovation may be enjoyed equitably by all at their choosing, and mitigating any 

disparate impacts of financial innovation.99

However, as discussed in Section II, a substantial number of American households are 

currently unbanked or underbanked. Innovations to payment systems, including a potential 

CBDC, should enable access for a broad set of potential consumers and uses, with appropriate restrictions to mitigate specific risks, including consumer protections to address 

resolution of errors. 

The payment system should expand equitable access to deposit and payment products and 

services, as well as bank and other sources of credit. This includes expanding access for 

people of color, rural communities, individuals without the resources to maintain expensive 

devices or reliable internet access, and individuals with cognitive, motor, or sensory impairments. The payment system should also prevent harm. Technological advances, educational 

material, and support should be leveraged to overcome the potential technical and economic barriers to using a payment system that may disproportionately harm some communities. If possible, offline capability should be incorporated into new payment systems. The 

payment system should support equity-advancing initiatives, and, with the cooperation of a 

range of organizations, could be used for the administration of social safety net programs. 

A CBDC could serve the unbanked and underbanked by providing a low-cost, easily accessible alternative to existing private sector payment services. To do so, there would likely 

need to be an option for access to the CBDC that did not require technological access for 

lower-value transactions. This could potentially increase access to other financial services 

98 See, e.g., Economic Report of the President (April 2022), https://www.whitehouse.gov/wp-content/

uploads/2022/04/ERP-2022.pdf; FRB Money & Payments, supra note 6, at 16.

99 See Exec. Order No. 14067, supra note 1, at §2(e).

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Policy considerations 

37
and reduce the need for the transfer of physical cash. As it is designed, implemented, and 

maintained, a payment system that is designed by the federal government should take 

particular notice of E.O. 13985 (Advancing Racial Equity and Support for Underserved 

Communities Through the Federal Government) and E.O. 14058 (Transforming Federal 

Customer Experience and Service Delivery to Rebuild Trust in Government).100

Yet, a CBDC could also further exacerbate financial exclusion for individuals lacking reliable 

access to technological services, the ability to pay for any costs associated with the system, 

the identification or other requirements to establish accounts, or trust in the appropriate use 

of the data collected with a CBDC system. To mitigate the risk, a U.S. CBDC could incorporate 

offline functionality. At the same time, the development of a U.S. CBDC should be coupled 

with government efforts to increase mobile and broadband access. The United States should 

also seek to maximize user choice and take steps to preserve the ability of consumers to use 

cash. Finally, use of a new payment system, including a potential U.S. CBDC, should not be 

mandated. 

There are potential modifications to instant payment systems that would make financial 

inclusion aspects of CBDC and instant payment systems comparable. Specifically, instant 

payment systems could have an associated framework or foundation, that could include 

technology, that participants could use with their communities and customers to promote 

inclusion. Banks could be encouraged to offer low-cost or no-cost accounts to consumers; 

these accounts could include access to instant payment services. This could be a gateway 

into the banking system for consumers who are unbanked. For consumers wary of the banking system, nonbank providers offer similar accounts or other intermediation functionalities; 

however, they currently generally lack direct access to Federal Reserve payment systems and 

are not subject to comprehensive federal prudential regulation. 

Some proponents of stablecoins argue that stablecoins have the potential to promote inclusion goals by reducing the cost of payments and reliance on banks and other intermediaries. 

However, the inclusion benefits of stablecoins may be limited to the extent that stablecoins 

are not appropriately regulated, operate on networks characterized by frequent congestion 

and high fees, or expose holders to potentially significant counterparty risk of the issuer or 

custodial wallet, as well as significant cyber or operational risks. And finally, stablecoins may 

exacerbate issues with financial inclusion in ways similar to CBDC, particularly those associated with access to technology. 

100 Exec. Order No. 13985, 86 Fed. Reg. 7009 (Jan. 20, 2021); Exec. Order No. 14058, 86 Fed. Reg. 71357 (Dec. 13, 2021).

Policy considerations 

38
Consideration 4: Minimizing risks 

A system of money and payment should have design features that protect the singleness of 

the currency, support financial stability, preserve credit creation, minimize the risk of illicit 

financial transactions, and promote environmental sustainability. 

Singleness of the currency

A key consideration is how different forms of money and payments support the singleness 

of the currency, defined as the use of money that is dollar-denominated and convertible at 

par from one form or issuer to another. Cash, reserve balances, and bank deposits all satisfy 

these requirements. Inconvertibility of monies has proven to amplify shocks in times of 

stress.101 

Future developments could potentially erode the singleness of the currency. The emergence 

of private forms of money, including digital assets, that are not subject to effective prudential 

oversight, could introduce significant levels of risk into the payment system. Fragmentation 

of the payment system also could result from the growth of private forms of money that are 

not interoperable. 

By construction, and assuming that a U.S. CBDC would be convertible one-for-one with 

other Federal Reserve liabilities, a U.S. CBDC would preserve a uniform currency. 102 Even if 

private-sector-issued stablecoins or other money-like digital assets continued to circulate, a 

CBDC could be used as a settlement medium across platforms, ensuring convertibility across 

monies and preserving monetary sovereignty. This could anchor confidence in money and 

the regulated financial system, given that banks must exchange deposits and other shortterm liabilities for cash. 

Instant payment systems may support the singleness of the currency by providing cheap, fast, 

and broadly accessible payment services, which could increase the attractiveness of bank 

deposits and thereby reduce demand for nonbank mediums of exchange. 

The implications of stablecoins for the singleness of the currency are less clear. While 

well-designed and regulated dollar-denominated stablecoins could support the singleness 

of the currency, stablecoins currently are not subject to appropriate regulation and oversight 

on a comprehensive and consistent basis, and, therefore, are vulnerable to runs. Legislation 

to establish such a framework would mitigate these risks and help ensure that they remain in 

place over time.103

101 See Gary B. Gorton & Ellis W. Tallman Fighting Financial Crises (2018); Gary Gorton, Clearinghouses and the Origin 

of Central Banking in the United States, 45 J. Econ. Hist. 277 (1985).

102 See Barry Eichengreen, From Commodity to Fiat and Now to Crypto: What Does History Tell Us? (NBER working paper 

no. 25426, Jan. 2019), https://www.nber.org/papers/w25426.

103 See, e.g., PWG Report, supra note 58.

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Policy considerations 

39
Safe assets and stress

A well-designed CBDC should support financial stability. As with Treasury securities or 

reserve balances, a broadly available safe asset could crowd out private money creation.104 

This could support financial stability in normal times and potentially decrease the probability 

of a crisis or losses during periods of stress. A CBDC could also mitigate maturity mismatch 

on bank balance sheets, if deposit holders substituted towards CBDC and banks then turned 

to alternative sources of funding.105 

In addition, a U.S. CBDC could help meet global demand for dollar funding, in normal times 

and particularly in times of stress. Investors could obtain dollar liquidity in the form of CBDC 

from banks or other intermediaries, broadening the availability of dollars in more than one 

form and easing funding pressures in stress periods. Meanwhile, wholesale CBDC could be 

used for the final settlement of financial transactions, in line with principles for financial 

market infrastructures that encourage money settlements to occur in central bank money.106 

These safe asset benefits should be weighed against potential costs, including negative 

implications on credit availability to businesses or consumers.

Under stress, the dynamics of CBDC holdings and substitutability could be notably different 

compared with normal times. In times of stress, CBDC could attract sizeable inflows if the 

creditworthiness of private-sector-issued liabilities were to come into question.107 Evidence 

suggests that investors are more likely to shift into safer instruments if the costs of doing so 

are relatively modest; simple interfaces or ease of transfer into CBDC could paradoxically 

lower such costs and increase risks.108 Inflows into CBDC could be destabilizing, particularly if 

there was fear or contagion that led solvent or liquid banks or other institutions to be perceived as fragile. Two tools to mitigate these inflows could be to lower the interest rate paid 

on CBDC, if that functionality was incorporated, or to impose holding limits. 

Authorities would also have to consider the appropriate level of foreign access to a U.S. CBDC 

to avoid risks of harm to the international monetary and financial system. In general, but 

104 See generally Robin Greenwood, Samuel G. Hanson & Jeremy C. Stein, A Comparative-Advantage Approach to 

Government Debt Maturity, 70 J. Fin. 1683 (2015).

105 See Todd Keister & Cyril Monnet, Central Bank Digital Currency: Stability and Information (Office of Financial 

Research working paper, July 12, 2022), https://www.financialresearch.gov/working-papers/files/OFRwp-22-04_central-bank-digital-currency.pdf.

106 See Bank for International Settlements Committee for Payments and Financial Market Infrastructures, 

Principles for Financial Market Infrastructures 2 (April 2012), https://www.bis.org/cpmi/publ/d101a.pdf. 

107 See generally Josh Frost, Lorie Logan, Antoine Martin, Patrick McCabe, Fabio Natalucci & Julie Remache, Overnight 

RRP Operations as a Monetary Policy Tool: Some Design Considerations, Board of Governors of the Federal Reserve 

System Finance and Economics Discussion Series (2015), https://www.federalreserve.gov/econres/feds/overnight-rrp-operations-as-a-monetary-policy-tool-some-design-considerations.htm. Under some conditions, theoretical models suggest the introduction of CBDC could increase the frequency of banking panics. See Stephen D. 

Williamson, Central Bank Digital Currency and Flight to Safety, 142 J. Econ. Dynamics & Control 104146 (2022). 

108 See generally Marco Cipriani & Gabriele La Spada, Sophisticated and Unsophisticated Runs, Federal Reserve Bank of 

New York Staff Reports (No. 956, Dec. 2020).

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40
especially in times of stress, a U.S. CBDC that facilitates easier foreign access to the dollar outside of the United States could increase currency substitution pressures abroad, undermine 

foreign authorities’ ability to manage their macro-financial policy, and amplify any underlying 

vulnerabilities in a jurisdiction’s financial sector or currency.

Instant payment systems could enhance financial stability, as they would offer an orderly and 

robust funds transfer system, both in normal times and under stress. Inflows to safe assets 

and runs from risky assets would likely not affect perceptions of instant payment systems. 

However, credit or liquidity concerns about institutions with access to instant payment 

systems could affect volumes and values transferred, and so instant payment systems need 

to be operationally resilient to accommodate increased flows under stress. 

A stablecoin might attract inflows in times of stress for reasons similar to CBDC. The extent 

of these inflows depends on a number of factors, including features of the stablecoin and 

features of other safe assets. On the one hand, a stablecoin might not incorporate holding 

limits or other checks on inflows during stress periods that a CBDC might incorporate. On the 

other hand, a stablecoin that is not adequately backed or perceived as safe could be subject 

to outflows during stress periods. Moreover, and depending on the underlying technology, 

stablecoins may be subject to congestion and high transaction fees that could also add to 

systemic risk under stress. Foreign access and use of U.S. dollar-denominated stablecoins 

outside of the United States could also raise similar issues abroad as a U.S. CBDC.

Credit creation

Banks are major providers of credit to households and businesses. If CBDC reduces bank 

deposits, banks may have a more limited ability to make loans, in addition to potential 

increases in bank liquidity risk. A wholesale CBDC that is available only to those institutions 

that currently have access to reserve balances would minimize any potential effect on credit 

creation at the time of implementation of CBDC. That said, the eventual effects on banking 

intermediation are uncertain.109 

The effect of instant payment systems on financial intermediation depends on the types 

of entities granted access to these systems: whether the ability to participate in the service 

is limited to banks or extended to nonbanks. Limiting participation largely to banks, as 

is the current state, could minimize disruption to credit creation, but doing so would also 

dampen potential benefits arising from increased competition or access to payment systems, 

including to underserved communities. While nonbanks can participate in instant payment 

109 Some research suggests that total intermediation would remain unchanged, although the funding of intermediation could shift. See Markus K. Brunnermeier & Dirk Niepelt, On The Equivalence of Private and Public Money, 106 J. 

Monetary Econ. 27 (2019).

The Future of Money and Payments

Policy considerations 

41
systems through a bank, offering direct access could provide additional competitive or access 

benefits.

Because stablecoins are currently issued by nonbanks, the effects of stablecoins on financial 

intermediation would depend more on how stablecoins are issued and the extent to which 

the assets backing stablecoins include loans or other private credit. To the extent that the 

assets backing stablecoins do not support private credit, negative effects on intermediation 

could be more pronounced. 

Illicit finance 

Criminals and illicit actors can abuse financial technology and services to make fraud 

schemes, drug sales, corruption, and ransomware attacks more effective and profitable, and 

achieve other illicit ends. The United States has a fundamentally strong and effective AML/

CFT regime designed to detect, report, and disrupt illicit financial activity. The regime is 

designed to bring transparency to the movement of money within the U.S. financial system, 

prevent the flow of illicit funds, and enable the reporting of suspicious transactions by U.S. 

financial institutions when identified.

The FATF standards call for CBDCs to be subject to the same standards as fiat currency and 

the G7 policy principles for CBDC acknowledge that a CBDC issuer needs to integrate a commitment to mitigate their use in facilitating crime.110 As a leader in the international financial 

system, a U.S. CBDC should be designed to promote AML/CFT compliance and mitigate illicit 

finance risks. This should include a form of effective identity verification and enough access 

to data to enable compliance with AML/CFT obligations such as transaction monitoring or 

record keeping, as necessary, as well as ensuring that intermediaries are supervised by the 

appropriate regulatory authority. In line with the risk-based approach, a CBDC system could 

also use access tiering based on user accounts, such as where account restrictions (e.g., 

holding and/or transaction limits) are imposed based on the level of identity verification. 

The development of foreign CBDCs with inadequate AML/CFT controls could also pose risks 

to the international financial system. For example, a foreign CBDC that allows anonymity 

at-scale could allow malign actors, such as sanctioned individuals, to move, hold, or launder 

illicit funds with the liquidity and anonymity of cash but without some of its practical 

limitations. 

To promote foreign CBDCs with strong AML/CFT controls, the U.S. should work with the G7 

and other allies and partners to consider leading cross-border payment experiments focused 

on innovations in AML/CFT compliance for cross-border CBDCs. The United States should 

also work with allies and partners to address the risks of a potential foreign CBDC used to 

110 See FATF, supra note 82, at 26–27; G7, supra note 83, at 10.

Policy considerations 

42
evade sanctions which will be critical because of the network effect in international currency 

adoption. The U.S. should also work through the FATF to monitor emerging AML/CFT risks 

posed by CBDCs.

Any financial institutions with access to U.S. instant payment systems or stablecoin service 

providers operating in the United States would be generally subject to U.S. AML/CFT obligations. Stablecoins are generally not distinct from other digital assets, and financial institutions offering services in stablecoins in the United States are subject to the same AML/CFT 

regulatory and supervisory framework as financial institutions providing the same services 

with other financial instruments. 

Globally, most countries lack effective AML/CFT regulatory frameworks for digital assets, 

including stablecoins, that are in line with the global standards.111 Illicit actors can exploit 

these gaps by using services in countries with weak regulatory and supervisory regimes to 

launder funds, store proceeds of crime, or evade sanctions in stablecoins or other digital 

assets. The liquidity of a widely adopted stablecoin could make stablecoins more attractive 

to criminals which would heighten the importance of effective global regulation and supervision of digital assets.

Environmental sustainability

The United States has set overarching environmental priorities, including cutting U.S. 

greenhouse gas pollution by 50-52 percent by 2030 and transitioning to a net-zero emissions 

economy by 2050.112 A new payments system or improvements to existing payment systems 

should be compatible with these priorities and seek to minimize energy use, resources, 

greenhouse gas emissions, and other pollution, and improve environmental performance 

relative to the status quo of the existing payments system.

Reflecting these priorities, forms of money and payment need to be environmentally sustainable. If based on a blockchain, a U.S. CBDC would likely use a permissioned blockchain, 

which consumes relatively less energy than a permissionless implementation, as the majority 

of the energy use from permissionless blockchains derives from the consensus mechanism.113 

In addition, policymakers could require energy efficiency as a key tenet of the development 

111 FATF, Targeted Update on Implementation of FATF Standards on Virtual Assets-VASPs 7 (June 2022), https://

www.fatf-gafi.org/media/fatf/documents/recommendations/Targeted-Update-Implementation-FATF%20StandardsVirtual%20Assets-VASPs.pdf. 

112 See U.S. Dep’t of State & Exec. Off. of the President, The Long-Term Strategy of the United States: Pathways 

to Net-Zero Greenhouse Gas Emissions by 2050 (Nov. 2021), https://www.whitehouse.gov/wp-content/

uploads/2021/10/US-Long-Term-Strategy.pdf. 

113 See White House Office of Science and Technology Policy, Climate and Energy Implications of Crypto-Assets in 

the United States 5 (Sept. 2022), https://www.whitehouse.gov/wp-content/uploads/2022/09/09-2022-Crypto-Assetsand-Climate-Report.pdf. 

The Future of Money and Payments

Policy considerations 

43
of a U.S. CBDC technology. This technology could form the basis of environmentally sustainable technologies for other financial markets, promoting public welfare. 

In part because they would not be based on a permissionless blockchain, instant payments 

do not raise the same questions of environmental sustainability and are likely to be consistent with the Administration’s climate goals. The proof-of-work consensus mechanism 

associated with certain blockchains uses more energy than some countries do.114 Therefore, 

stablecoins that rely on proof-of-work blockchains likely represent the least efficient option 

from a sustainability perspective. Although technologies are under development that could 

lessen energy use, a permissioned blockchain or instant payments would be more sustainable options with current technology.

114 See id.

Policy considerations 

44
V. Recommendations

While the current U.S. system of money and payments has significant strengths, the United 

States also needs to continue to innovate in support of its policy objectives. As set out in the 

Executive Order and outlined in the Appendix of this report, these objectives center around 

themes of developing a future system of money and payments that promotes U.S. values, 

fosters inclusion, and minimizes risks. The following recommendations would help achieve 

these objectives. The recommendations are for the U.S. government to:

Recommendation 1: Advance work on a possible U.S. CBDC, in case one is 

determined to be in the national interest.

A U.S. CBDC has the potential to offer significant benefits, but further research and development on the technology that would support a U.S. CBDC is needed, and could take years. A 

U.S. CBDC could contribute to a payment system that is more efficient, provides a foundation 

for further technological innovation, facilitates more efficient cross-border transactions, and 

is environmentally sustainable. It could promote financial inclusion and equity by enabling 

access for a broad set of consumers. In addition, it could be designed to foster economic 

growth and stability, protect against cyber and operational risks, be consistent with individual 

rights, and minimize risks of illicit financial transactions. 

A potential U.S. CBDC could also have national security implications, and should be designed 

to help preserve U.S. global financial leadership, and support the effectiveness of sanctions. 

Moreover, the United States should ensure that international standards for CBDCs are consistent with U.S. values and priorities like protecting privacy and combatting illicit finance.

Still, there could be unintended consequences of a U.S. CBDC, including runs to U.S. CBDC in 

times of stress, which could pose risks to financial stability; a reduction in credit availability; 

or higher credit costs for businesses and governments. Moreover, a U.S. CBDC must be 

extremely reliable and, for that reason, technological experimentation with U.S. CBDC may 

not be at the same speed as private sector payment innovations. 

The Federal Reserve published a discussion paper in January 2022 titled Money and 

Payments: The U.S. Dollar in the Age of Digital Transformation.

115 The discussion paper 

solicited comments on a variety of policy considerations and noted that the Federal Reserve 

will only pursue a U.S. CBDC in the context of broad public and cross-governmental support.

The Federal Reserve is encouraged to: continue its research and technical experimentation 

on CBDCs, including its work on analyzing the possible choices of technology and other 

design elements of a CBDC; continue evaluating policy considerations as described in its 

January 2022 discussion paper; find mechanisms to provide the public with periodic updates 

115 FRB Money & Payments, supra note 6.

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45
on these initiatives, given the strong public interest in this topic; and consider how research 

and development on digital assets and other related innovations that is conducted or supported by other Federal agencies could support a U.S. CBDC.

To support the Federal Reserve’s efforts and to advance further work on a possible U.S. CBDC, 

actions in the following areas should be taken:

• The Treasury Department will lead an inter-agency working group (“CBDC Working 

Group”) to coordinate and consider implications of adoption of a U.S. CBDC for policy 

objectives such as national security, democratic values, the smooth functioning of the 

international financial system, financial inclusion, and privacy. The CBDC Working 

Group will continue to assess the merits of a CBDC and leverage cross-government 

technical expertise to the extent useful for Federal Reserve efforts. 

• The CBDC Working Group will engage in information sharing with allies and partners 

on CBDC policy priorities, and support the Federal Reserve, as appropriate, in engaging with allies and partners to promote shared learning and responsible development 

of CBDCs. 

• The principals and/or deputies of the Federal Reserve, National Economic Council, 

National Security Council, the Office of Science and Technology Policy, and the 

Treasury Department will meet regularly to discuss the progress of the CBDC Working 

Group and share updates on CDBC and other payments innovations. Representatives 

from other offices and agencies within the Executive Branch will join, as appropriate.

Recommendation 2: Encourage use of instant payment systems to support 

a more competitive, efficient, and inclusive U.S. payment landscape.

New instant payment systems have been recently developed or are scheduled to launch 

soon, capable of handling higher volumes of transactions at lower cost than some current 

payment systems. Experience with instant payment systems around the world suggests that 

enhancements are possible to make the payment system more competitive, efficient and 

inclusive and might also reduce the costs of cross-border transactions. 

Yet frictions may limit the extent to which the potential benefits of instant payment systems 

are realized. Consumers, businesses, and financial institutions may need to adjust their 

financial habits and practices to incorporate new technologies. In addition, some instant 

payment systems are directly accessible only by depository institutions or members of 

the Federal Reserve System.116 Potential improvements to cross-border payment systems 

present a range of challenges, including governance issues and risks that might arise when 

considering interoperability of cross-border systems. 

116 Federal Reserve System, supra note 30. 

 Recommendations 

46
The U.S. government should consider the following actions related to instant payment 

systems: 

• The U.S. government should continue its outreach efforts to consumers, businesses, 

and financial institutions, with a focus on inclusion of underserved communities. 

International engagement should also continue. 

• The U.S. government should promote development and use of innovative access 

technologies by payment providers, to facilitate greater consumer access to, and use 

of, instant payment systems. These efforts could include continued engagement in 

standard setting, including for interoperability, clarification of regulatory frameworks 

where necessary, and potentially public-private partnerships to explore possibilities 

for low-tech instant payment system access. These efforts also could include 

considering the potential benefits and drawbacks of expanding eligibility to directly 

participate in instant payment systems, as discussed in Recommendation 3. 

• In settings where appropriate, U.S. government agencies should consider and 

support the use of instant payment systems. The U.S. government sends and receives 

millions of payments per day. Use of instant payment systems by U.S. government 

agencies could promote the expedient distribution of disaster, emergency or other 

government-to-consumer payments, potentially providing more rapid support for 

underserved communities. 

Recommendation 3: Establish a federal framework for payments 

regulation to protect users and the financial system, while supporting 

responsible innovations in payments. 

The United States should promote responsible innovations in payments. Nonbanks are 

increasingly providing payment services, including issuing money (or money-like) liabilities 

and processing payments. On the one hand, participation by nonbank payments companies 

may contribute to higher levels of competition, inclusion, and innovation. On the other, if 

these firms are not adequately regulated and supervised, there may be risks to consumers, 

the financial system, and the broader economy. A federal framework for payments regulation 

would help to realize the benefits from nonbank payment providers while minimizing the 

risks. Accordingly, Treasury recommends consideration of the establishment of a federal 

framework for nonbank payment providers that would complement existing federal requirements, including for consumer protection and AML/CFT. 

A federal framework for payments regulation could support responsible innovation in 

payments by establishing appropriate federal oversight of nonbank companies that are 

involved in the issuance, custody, or transfer of money or money-like assets. Today, nonbank 

payment providers are subject to some federal requirements, but are otherwise regulated 

The Future of Money and Payments

 Recommendations

47
and supervised at a state level.117 State oversight of nonbank payment providers varies 

significantly, and is generally not designed to address run risk, payments risks, or other operational risks in a consistent and comprehensive manner.118 A federal framework for payments 

regulation would provide a common floor for minimum financial resource requirements 

and other standards that may exist currently at the state level, and thus build on existing 

state frameworks. In considering and developing a federal framework, policymakers would 

consider existing state and federal standards, the nature and risks of payment activities, and 

developments in payments. Such a framework would also complement existing federal AML/

CFT obligations and consumer protection requirements that apply to nonbank payment 

providers. 

In addition, a federal framework for payments regulation could support considerations for 

both a U.S. CBDC and instant payments. As discussed above, a U.S. CBDC system may rely on 

intermediaries for a wide range of services, including payment services, custody, and distribution. A federal framework for payments regulation would provide a clear basis for oversight 

of such firms. In addition, an appropriate federal framework for payments regulation could 

provide a pathway for allowing nonbank payment providers to participate directly in instant 

payment systems (see Recommendation 2).119

Recommendation 4: Prioritize efforts to improve cross-border payments. 

Private sector payment innovations have been driven in part by inefficiencies in the current 

cross-border payment systems. To respond to these inefficiencies, countries are making 

efforts to enhance cross-border payments, both through improvements to existing systems 

and also with forward-looking work that leverages new technologies. The United States 

also has a strong national interest in being at the forefront of technological development 

and supporting global standards for cross-border payment systems that reflect U.S. values, 

including privacy and human rights; are consistent with AML/CFT considerations; and protect 

U.S. national security. 

The United States is already very active in efforts to improve cross-border payments, including through the G20, FSB and Committee on Payments and Market Infrastructure (CPMI). In 

2020, the G20 endorsed a roadmap for enhancing cross-border payments, which sets out an 

117 Federal law applies to some aspects of payment services, including the Electronic Funds Transfer Act and the Bank 

Secrecy Act. See, e.g., 15 U.S.C. §§ 1693 et seq.; 31 U.S.C. §§ 5311 et seq. See also 12 U.S.C. § 378(a)(2).

118 See Andrew P. Scott, Telegraphs, Steamships, and Virtual Currency: An Analysis of Money Transmitter 

Regulation (Congressional Research Service Report No. R46486, Aug. 20, 2020), https://crsreports.congress.gov/

product/pdf/R/R46486; Lael Brainard, “The Digitalization of Payments and Currency: Some Issues for Consideration,” 

speech presented at the Symposium on the Future of Payments, Stanford, CA, February 5, 2020; Dan Awrey, Bad 

Money, 106 Cornell L. Rev. 1 (2020); Dan Awrey & Kristin van Zwieten, Mapping the Shadow Payment System (SWIFT 

Institute Working Paper No. 2019-001, Cornell Legal Studies Research Paper No.19-44, Oxford Legal Studies Research 

Paper No. 55/2019, October 8, 2019), https://ssrn.com/abstract=3462351.

119 See Federal Reserve System, supra note 30.

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48
ambitious workplan to meet the U.S. policy priority of developing a faster, cheaper, and more 

transparent international payments system. These efforts should be elevated and prioritized 

to achieve outcomes in coordination with other jurisdictions, including but not limited to:

• Fostering the safety and soundness of private and public sector innovations for 

cross-border payments, while protecting U.S. national security; 

• Considering the feasibility of new multilateral platforms and arrangements for 

cross-border payments, including utilizing instant payments;

• Working across jurisdictions to align regulatory, supervisory, and oversight frameworks for cross-border payments; and

• Harmonizing data and market practices for cross-border payments. 

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VI. Appendix: Policy objectives

This Appendix sets out eight principal policy objectives, drawn from Executive Order 14067, 

that inform this Report’s analysis of payment system innovations, including a potential U.S. 

CBDC.Because this Appendix may also serve as a set of shared objectives for other reports 

required by Executive Order 14067, some of the concepts previewed here are more appropriate for in-depth consideration by other reports.

1. Provide benefits and mitigate risks for consumers, investors, and businesses120

a. Consumers, investors, and businesses should be financially protected

b. Consumers, investors, and businesses should be digitally protected

2. Promote economic growth and financial stability and mitigate systemic risk121

a. The payment system should support economic activity

b. The payment system should ensure the resilience of the financial system

c. The payment system should be operable in normal circumstances and under stress

3. Improve payment systems122

a. The payment system should be functional

b. The payment system should be efficient

c. The payment system should be secure

d. The payment system should be flexible 

4. Ensure the global financial system has appropriate transparency, connectivity, and 

platform and architecture interoperability or transferability, as appropriate123

a. The payment system should be appropriately interoperable.

5. Advance financial inclusion and equity124

a. All should be able to use the payment system

b. The payment system should expand equitable access to the financial system

120 See, e.g., Exec. Order No. 14067, 87 Fed. Reg. 14143 (March 9, 2022) §§ 1; 2(a); 2(d); 4(a)(i); 5; 8(a)(i); 8(a)(v).

121 See, e.g., id. at §§ 1; 2(b); § 4(a)(i); 4(a)(iii); 4(b); 4(b)(i); 6; 8(a)(i).

122 See, e.g., id. at §§ 1; 2(d); 2(e); 4(a)(i); 4(a)(iii); 4(b); 4(c); 8(a)(ii); 8(a)(iii).

123 See, e.g., id. at §§ 2(d); 4(a)(ii); 4(a)(iii); 8(a)(ii); 8(a)(v).

124 See, e.g., id. at §§ 1; 2(e); 4(a)(i); 4(a)(iii); 4(b)(ii); 5(a).
6. Protect national security125

a. The payment system should promote compliance with AML/CFT requirements and 

mitigate illicit finance risks

b. The payment system should support U.S. leadership in the global financial system, 

including the global role of the dollar

7. Provide ability to exercise human rights126

a. The payment system should respect democratic values and human rights.

8. Align with democratic and environmental values, including privacy protections127

a. Sensitive financial data should be private

b. The payment system should be sustainable

125 See, e.g., id. at §§ 1; 2(c); 2(d); 2(f); 4(a)(i); 4(a)(iii); 4(b)(v); 4(b)(vi); 7; 8(a)(i).

126 See, e.g., id. at §§ 1; 2(f); 4(a)(i); 4(b)(vi).

127 See, e.g., id. at §§ 1; 2(a); 2(c); 2(d); 2(f); 4(a)(ii); 4b(iv); 4(b)(vii); 5(b); 5(b)(v); 8(a)(ii); 8(a)(v).

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