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

The question is whether the new technology is going to make the yuan an attractive alternative to other currencies. Chinese central bankers say it is not an effort to supplant the dollar, and Martin Chorzempa, a senior fellow at the Peterson Institute for International Economics, said digitization won’t fix issues that make the yuan unattractive as a reserve currency in the first place — like capital controls, which mean you can’t exchange it easily at all times.

Is Bitcoin coming for the dollar?

Others worry that private-sector innovations like Bitcoin or “stablecoins,” which are backed by a bundle of assets or currencies, could become an attractive alternative to government-created cash if central banks don’t keep up.

Mr. Powell has argued that Bitcoin is more like gold than the dollar. It has value because it’s rare and people want to hold it, so it can even at times be traded for other goods and services, but it is not government-guaranteed money.

But global regulators did slow down Facebook’s stablecoin project, originally known as Libra and now called Diem, because they worried about the potential for money laundering and financial system disruption.

Mr. Powell said in testimony last year that Libra was “a bit of wake up call that this is coming fast and could come in a way that is quite widespread and systemically important fairly quickly,” highlighting the “importance of making quick progress.”

If tech companies come to dominate the payment system, that could create privacy and stability issues. In fact, China’s digital yuan was pursued partly in reaction to the rise and dominance of private-sector digital payment platforms like Alipay and WeChat Pay.

A faster or instant payments system, like the FedNow instant payment technology that America’s central bank is now developing, could keep the Fed up-to-date without changing the system as much as a digital currency would. But digital dollar fans say the point is to prepare for the future — and the future might be central bank digital currency.

“Digital cash, if built in the right way, could be really groundbreaking,” said Neha Narula, who is the director of the Digital Currency Initiative at the Massachusetts Institute of Technology and is working with the Boston Fed on its project.