Digital Currencies and Central Banks: Is America Moving Towards a Digital Dollar?” This question has taken on new urgency in 2025, amidst a rapidly evolving global financial landscape. The convergence of factors, including the growing popularity of cryptocurrencies, the exploration of Central Bank Digital Currencies (CBDCs) by numerous nations, and a recent executive order in the United States banning the development of a digital dollar, have created a complex and uncertain future for the U.S. monetary system1. This article examines the current state of digital currencies, the potential benefits and risks of a digital dollar, and the implications of recent policy decisions for the future of American finance.

Understanding the Digital Currency Landscape

The world of digital currencies is composed of two primary categories: cryptocurrencies and Central Bank Digital Currencies (CBDCs). Cryptocurrencies, such as Bitcoin, are decentralized digital assets that operate on blockchain technology and are not backed by any central authority1. CBDCs, on the other hand, are digital forms of a country’s fiat currency, issued and regulated by the central bank1.

Cryptocurrencies have gained significant popularity in recent years, driven by their potential for decentralized finance, borderless transactions, and speculative investment opportunities3. However, their volatility, regulatory uncertainty, and association with illicit activities have also raised concerns among policymakers and financial institutions1.

CBDCs represent a different approach to digital currency, offering the potential benefits of digital payments while maintaining the stability and oversight of a central bank1. Proponents argue that CBDCs could improve payment efficiency, reduce transaction costs, promote financial inclusion, and enhance the effectiveness of monetary policy1. However, concerns have been raised about privacy, cybersecurity, and the potential for government control over citizens’ financial lives4.

As of September 2024, 134 countries and currency unions, accounting for 98% of the global economy, were researching CBDCs1. Many nations are in advanced stages of development, pilot programs, or even launch phases. The Bahamas, Jamaica, and Nigeria have already launched their CBDCs, while major economies like China and the European Union are making significant progress in their own digital currency initiatives1.

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The Digital Dollar Debate in the United States

The United States has been engaged in a debate over the potential issuance of a digital dollar for several years. The Federal Reserve has been exploring the potential benefits and risks of a CBDC, publishing research papers and engaging in public consultations1. However, the Fed has also expressed caution, emphasizing the need for congressional approval and careful consideration of the potential impacts on the financial system1.

The potential benefits of a digital dollar include:

• Improved Payment Efficiency: A digital dollar could streamline payments, reduce transaction costs, and enable faster and more efficient transfers of funds1. 
• Financial Inclusion: A digital dollar could provide access to financial services for unbanked and underbanked populations, promoting greater financial inclusion1. 
• Monetary Policy Effectiveness: A digital dollar could enhance the effectiveness of monetary policy by allowing the Federal Reserve to implement targeted stimulus measures and respond more quickly to economic shocks1. 
• Global Competitiveness: A digital dollar could help the United States maintain its position as a leader in the global financial system and compete with other countries that are developing CBDCs2. 

However, the potential risks of a digital dollar include:

• Privacy Concerns: A digital dollar could raise concerns about government surveillance and the potential for the misuse of personal financial data1. 
• Cybersecurity Risks: A digital dollar system could be vulnerable to cyberattacks, potentially leading to the theft of funds or disruption of the payment system4. 
• Disruption of the Banking System: A digital dollar could disintermediate traditional banks, potentially reducing their profitability and lending capacity4. 
• Monetary Policy Challenges: A digital dollar could complicate monetary policy by altering the demand for reserves and the effectiveness of interest rate controls. 

Despite these potential benefits, the path forward for a digital dollar in the United States has become increasingly uncertain. The election of Donald Trump in 2024 and his subsequent executive order banning the development of a digital dollar have significantly altered the landscape1.

Trump’s Ban on a Digital Dollar

On January 23, 2025, President Trump signed an executive order titled “Strengthening American Leadership in Digital Financial Technology,” which prohibits American institutions from developing, issuing, or using CBDCs15. This order argues that a CBDC would threaten financial stability, individual privacy, and U.S. sovereignty1.

The executive order also established a working group on digital asset markets, including cryptocurrencies, within the National Economic Council15. The working group is tasked with developing a federal regulatory framework governing the issuance and operation of digital assets, including stablecoins, and evaluating the creation of a strategic national digital assets stockpile5.

Trump’s decision to ban a digital dollar has been met with mixed reactions. Supporters of the ban argue that it protects individual privacy, prevents government overreach, and preserves the traditional banking system. Critics, however, contend that it puts the United States behind in the global digital currency race and could weaken the dollar’s global standing1.

Darrell Duffie, an economist and finance professor at Stanford University, stated that Trump’s executive order effectively halted the development of a digital dollar, although progress had already been minimal1. He also noted that the U.S. government has taken a stronger stance against CBDCs than any other country, while the ECB has made significant progress on the digital euro, and China has long been running its e-CNY project1.

The Global CBDC Race

While the United States has taken a step back from the development of a digital dollar, other countries are moving forward with their own CBDC initiatives. China’s digital currency, the e-CNY (digital yuan), has been in development since 2017 and had around 260 million users and a total transaction volume of $986 billion as of June 20241. The European Central Bank (ECB) is in the preparation phase for the digital euro, laying the foundations and rules for its CBDC and selecting providers to develop the platform’s infrastructure1.

Other countries, including Türkiye, Russia, Australia, India, Japan, and Brazil, are in the pilot stage of CBDC exploration1. The Bahamas, Jamaica, and Nigeria have already launched their CBDCs1.

The growing number of countries exploring and implementing CBDCs raises questions about the future of the global financial system and the role of the U.S. dollar. Some experts argue that the U.S. risks falling behind in the fintech race if it does not develop a digital dollar, potentially weakening the dollar’s global standing1. Others argue that the U.S. should focus on regulating cryptocurrencies and promoting innovation in the private sector rather than issuing a CBDC2.

The Future of Cryptocurrencies in the United States

While Trump has banned the development of a digital dollar, he has also expressed support for cryptocurrencies and the broader digital asset industry3. Shortly after taking office in January 2025, Trump declared he wanted to make the U.S. the “crypto capital of the planet” and signed an executive order aimed at promoting the domestic cryptocurrency sector3.

Trump’s order established a new Presidential Working Group on Digital Asset Markets, tasked with developing a federal regulatory framework governing digital assets, including stablecoins, and evaluating the creation of a strategic national digital assets stockpile35. The administration also rescinded accounting guidance that had made it very expensive for some listed companies to safeguard crypto assets on behalf of third parties3.

These actions suggest that the Trump administration intends to create a more favorable regulatory environment for cryptocurrencies in the United States. However, the details of the regulatory framework remain to be seen, and it is unclear how the administration will balance the promotion of innovation with the need to protect investors and prevent illicit activities.

The future of cryptocurrencies in the United States will also depend on the actions of Congress and regulatory agencies, such as the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). These agencies have been grappling with how to regulate cryptocurrencies, with ongoing debates about whether they should be classified as securities, commodities, or something else entirely.

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The Role of Blockchain Technology

Blockchain technology, the underlying technology behind cryptocurrencies, has the potential to transform a wide range of industries beyond finance. Blockchain can enhance transparency, security, and efficiency across various sectors, from supply chain management to healthcare to voting systems.

The Trump administration has expressed support for promoting blockchain technology, recognizing its potential to drive innovation and economic growth. However, the administration has also emphasized the need to ensure that blockchain applications are secure and do not facilitate illicit activities.

The development of blockchain technology and its adoption across various industries will likely continue regardless of the fate of a digital dollar. However, the absence of a U.S. CBDC could limit the ability of the United States to fully leverage the potential of blockchain technology in the financial system.

Implications for Traditional Banks

The emergence of digital currencies, both cryptocurrencies and CBDCs, poses challenges and opportunities for traditional banks. Cryptocurrencies have the potential to disrupt traditional banking services, such as payments, lending, and investment management. CBDCs could further disrupt the banking system by providing a direct channel for individuals and businesses to hold and transact with central bank money.

Traditional banks will need to adapt to the changing landscape by embracing new technologies, developing new products and services, and partnering with fintech companies. Banks could also play a role in the issuance and distribution of CBDCs, potentially earning fees and maintaining their relationships with customers.

However, the transition to a digital currency system could also pose risks for traditional banks. The disintermediation of banks could reduce their profitability and lending capacity, potentially leading to financial instability. Banks will need to carefully manage these risks and adapt their business models to thrive in the digital age.

Cybersecurity Considerations

Cybersecurity is a critical consideration for any digital currency system, whether it is a cryptocurrency or a CBDC. Digital currencies are vulnerable to cyberattacks, which could result in the theft of funds, disruption of the payment system, or loss of confidence in the currency.

CBDCs, in particular, raise unique cybersecurity challenges due to their centralized nature and the potential for government control. A successful cyberattack on a CBDC system could have catastrophic consequences, potentially disrupting the entire economy and undermining trust in the government.

Governments and central banks will need to invest heavily in cybersecurity measures to protect CBDC systems from cyberattacks. These measures should include robust encryption, multi-factor authentication, intrusion detection systems, and incident response plans.

Conclusion: An Uncertain Future

The future of digital currencies in the United States remains uncertain. Trump’s ban on a digital dollar has significantly altered the landscape, putting the U.S. at odds with many other countries that are actively exploring or implementing CBDCs. While the Trump administration has expressed support for cryptocurrencies and blockchain technology, the details of its regulatory framework remain to be seen.

The emergence of digital currencies poses challenges and opportunities for policymakers, financial institutions, and individuals. Navigating this complex landscape requires careful consideration of the potential benefits and risks of digital currencies, as well as a commitment to innovation, security, and consumer protection.

As the world moves towards a more digital financial system, the United States will need to carefully consider its options and develop a strategy that promotes its economic interests, protects its citizens, and maintains its leadership in the global financial system. Whether that strategy involves a digital dollar, a robust regulatory framework for cryptocurrencies, or a combination of both remains to be seen. But the decisions made in the coming years will have a profound impact on the future of American finance.

The Information Technology and Innovation Foundation (ITIF) is an independent, nonprofit, nonpartisan research and educational institute focusing on the intersection of technological innovation and public policy. Recognized by its peers in the think tank community as the global center of excellence for science and technology policy, ITIF’s mission is to formulate and promote policy solutions that accelerate innovation and boost productivity to spur growth, opportunity, and progress.

In addition, the US Securities and Exchange Commission (SEC) rescinded accounting guidance that had made it very expensive for some listed companies to safeguard crypto assets on behalf of third parties. The crypto industry said that guidance had stymied digital-asset adoption, according to Reuters.
Experts quoted by Reuters said the new approach had the potential to push cryptocurrencies into the mainstream.

Piero Cipollone, a board member of the ECB, told Reuters shortly afterwards that euro-zone banks needed a digital euro in response.
Federal Reserve Chair Jerome Powell asserted Tuesday that the central bank will not develop its own digital currency as long as he is in charge.
(a) Except to the extent required by law, agencies are hereby prohibited from undertaking any action to establish, issue, or promote CBDCs within the jurisdiction of the United States or abroad.

(i) The Working Group shall propose a Federal regulatory framework governing the issuance and operation of digital assets, including stablecoins, in the United States. The Working Group’s report shall consider provisions for market structure, oversight, consumer protection, and risk management.
(ii) The Working Group shall evaluate the potential creation and maintenance of a national digital asset stockpile and propose criteria for establishing such a stockpile, potentially derived from cryptocurrencies lawfully seized by the Federal Government through its law enforcement efforts.
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Recognized by its peers in the think tank community as the global center of excellence for science and technology policy, ITIF’s mission is to formulate and promote policy solutions that accelerate innovation and boost productivity to spur growth, opportunity, and progress.
(a) Executive Order 14067 of March 9, 2022 (Ensuring Responsible Development of Digital Assets) is hereby revoked.
The US is now the first country to ban its central bank from developing a digital currency, despite the Fed’s previously cautious approach to digitizing the dollar.
Trump signed an executive order titled “Strengthening American Leadership in Digital Financial Technology” on Jan. 23, which establishes a working group on digital asset markets, including cryptocurrencies, within the National Economic Council, while prohibiting American institutions from developing, issuing, or using CBDCs.
WASHINGTON—In response to President Trump’s executive order prohibiting Central Bank Digital Currencies (CBDC), the Information Technology and Innovation Foundation (ITIF), the leading think tank for science and technology policy, released the following statement from Vice President Daniel Castro:

US is now the first country to ban its central bank from developing a digital currency, despite the Fed’s previously cautious approach to digitizing the dollar.
Digital assets ended 2024 on a high note, with the price of bitcoin, for example, passing $100,000 for the first time and reaching a market capitalisation of $2 trillion, making it one of the largest and most liquid individual assets in the world. Some analysts, including Fidelity Digital Assets, believe 2025 will prove a game changer in terms of the acceptance and adoption of bitcoin, with more nation-states, central banks, sovereign wealth funds and government treasuries looking to establish strategic positions in the cryptocurrency.

References:

• Trump’s digital dollar ban puts US behind in global currency race
• US Should Assess Feasibility of a Digital Dollar to Stay Competitive, Says ITIF
• 3 Reasons a Digital Dollar Is Still a Long Way Off
• Powell squashes the possibility that the Fed will develop its own digital currency
• STRENGTHENING AMERICAN LEADERSHIP IN DIGITAL FINANCIAL TECHNOLOGY
• Trump’s digital dollar ban gives China and Europe’s CBDCs free rein