The partners are working on a "multiyear effort to build and test a hypothetical digital currency oriented to central bank uses," Federal Reserve governor Lael Brainard confirmed in a speech.

"Given the dollar’s important role, it is essential that the Federal Reserve remain on the frontier of research and policy development regarding CBDC,” says Brainard.

"The introduction of Bitcoin and the subsequent emergence of stablecoins with potentially global reach, such as Facebook's Libra, have raised fundamental questions about legal and regulatory safeguards, financial stability, and the role of currency in society. This prospect has intensified calls for CBDCs to maintain the sovereign currency as the anchor of the nation's payment systems," she continues.

However, she stresses that the Fed has not made a decision on whether to undertake the "significant policy process" that would be required to actually begin moving towards the issuance of a CBDC.

Instead, "we are taking the time and effort to understand the significant implications of digital currencies and CBDCs around the globe".

Boston Fed assistant vice president Robert Bench is leading the research team, which is collaborating with the Digital Currency Initiative at MIT.

Bench says one of the big benefits of a CBDC would be the prevention of private sector monopolies on digital currencies, which could have privacy implications, since - as with the internet - some companies would base their revenue models on mining user data.

"As the US central bank, we need to understand all the tradeoffs that could exist if we were tasked to create a digital form of the dollar. That is the core of this project: How to have the most comprehensive map of tradeoffs for the American public if we are asked to create a digital dollar," says Bench.

Meanwhile, the Fed continues to collaborate with other central banks on the issue, with Brainard noting: "Since financial and payments systems share extensive cross-border linkages, a poorly designed CBDC issued in one jurisdiction could create financial stability issues in another jurisdiction."