A CBDC would need to protect against cyber and operational risks, safeguard the privacy of sensitive data, and minimize risks of illicit financial transactions. Additionally, one of the most important aspects in our deliberations is that any form of a CBDC in the future would need to be intermediated. This means that the private sector would need to act as intermediaries in that system, and a direct account approach would not be contemplated. While the Federal Reserve has made no decision on whether or how to issue a CBDC, we are actively conducting technical investigations into both retail and wholesale CBDC design. Project Hamilton, which is a partnership between the Federal Reserve Bank of Boston and MIT, has experimented with potential approaches to a digital dollar, with work focused on retail uses and payment channels. In the use case they explored, the Hamilton team was able to demonstrate the potential for usage at scale, which would be a key design element of a retail CBDC. 6 As a complement, and in line with the New York Fed's unique role in the Federal Reserve System with wholesale payments in both domestic payments and foreign exchange, the New York Innovation Center is researching technical aspects related to wholesale CBDCs. In addition to CBDC, the broader digital assets landscape, which includes stablecoins – cryptoassets that are backed by assets such as U.S. Treasury securities to stabilize their value – and unbacked cryptoassets, has grown significantly in recent years, and continues to evolve quickly.
It is held by depository institutions as bank reserves or by individuals in the form of paper currency. Demand for central bank money is driven by many fundamental factors, including the settlement  1/5  BIS - Central bankers' speeches  of both retail and wholesale transactions and its role as a store of value. In addition to these factors, which are likely familiar to any of you who have studied monetary economics, demand for the U.S. dollar is also driven by international factors owing to the role of the dollar in the global economy. In fact, while precise estimates are challenging to come by, available data suggests that more than half of all dollars in circulation may be held outside the United States. 5 As a result, innovation related to money provided by the Federal Reserve will have impacts that extend far beyond U.S. borders. A U.S. CBDC – a digital form of the U.S. dollar that is a direct liability of the Federal Reserve– has the potential to offer significant benefits. It could enable a payment system that is more efficient, provide a foundation for further technological innovation, and facilitate faster cross-border transactions. It could promote financial inclusion and equity by enabling access for a broad set of consumers and foster economic growth and stability. In order to fully realize benefits such as these, a digital dollar would need to be thoughtfully designed and implemented.