As of Feb. 10, the Federal Reserve Board said, $2.05 trillion worth of Federal Reserve notes were in circulation. Yet this is only a little bit more than 10% of the total money supply. The rest is in the form of checking deposits, savings deposits and money market securities.

Another component may be added in the future. Federal Reserve Chairman Jerome Powell told Congress on Feb. 23 that the board is looking carefully at issuing a digital dollar, calling it a “high priority” project. He cautioned, however, that “significant technical and policy questions” are related to such a move.

Cash now composes just 20.5% of all in-store payments globally, down by nearly a third from 2019, and it is expected to decrease further in the next few years, accelerated in part by the rise of cryptocurrencies such as Bitcoin, Litecoin, and Ethereum, along with the growing popularity of digital payments.

Powell said that since the dollar is the world’s reserve currency, the U.S. does not need be the first to issue a digital currency, but to maintain the dollar’s status, it has “to get it right.”

This is despite that fact that the People’s Bank of China’s is pressing ahead with its own digital currency. Axios reported in February that it was extending testing of its digital renminbi to the city of Chengdu, with a population of 16 million. It is already being tested in Shenzhen, Shanghai, and Beijing.

Treasury Secretary Janet Yellen seems to be on board, saying, “Too many Americans don’t have access to easy payments systems and banking accounts, and I think this is something that a digital dollar, a central bank digital currency (CBDC), could help with. It could result in faster, safer and cheaper payments, which I think are important goals.”

The extent of the work the Fed has already done is shown in a lengthy report it issued on Feb. 24, called “Preconditions for a general-purpose central bank digital currency.” Among the issues it raises are safety and efficiency; the requisite broad support from government and users; and the effect it could have on the role of banks, other financial institutions, and technology and infrastructure providers.

It also discusses the legal tender status of CBDC, since no statute nor other federal law requires an individual or private business to accept currency or coins as payment. Those in the private-sector are generally free to develop their own policies for accepting cash, as long as they comply with state law. Therefore, even if a CBDC were made legal tender, its acceptance in commercial use would not be guaranteed. That would depend, the report says, “on the credibility of the CBDC, including the soundness of the legal framework underpinning it.”

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