The potential introduction of a U.S. digital dollar presents opportunities to modernize financial infrastructure, improve payment efficiency, and expand access to financial services. However, integrating a new form of digital currency into the banking system also raises important questions about operational resilience, cybersecurity, regulatory compliance, and risk management.
Prepared by the Digital Dollar Project in collaboration with its Risk Working Group and Accenture, Secure Adoption of a Digital Dollar: Operational and Compliance Risks for the U.S. Banking Sector examines the potential implications of a U.S. central bank digital currency (CBDC) for financial institutions.
The working paper presents a preliminary framework for identifying potential operational and compliance risks associated with retail and wholesale U.S. CBDCs, along with possible mitigation measures and policy considerations for the banking sector. It is intended to inform further research and public discussion rather than recommend a particular CBDC design or policy outcome.
The research considers both retail and wholesale CBDC scenarios, offering insights for financial institutions, regulators, policymakers, and technology providers evaluating the practical challenges of digital currency innovation.
Understanding the Risks of a Digital Dollar for the U.S. Banking Sector
A potential digital dollar could introduce new capabilities to the financial system, including faster transactions, improved settlement efficiency, and greater accessibility. At the same time, its introduction could create new operational risks or amplify challenges already faced by banks and other financial intermediaries.
The working paper explores these considerations within the context of the Digital Dollar Project’s Champion Model, which envisions a tokenized form of the U.S. dollar operating alongside existing forms of money.
Under the model examined, commercial banks and other regulated intermediaries would continue to play a central role in distributing and potentially safeguarding digital dollars.
The research considers how this approach could affect banking operations, financial crime prevention, customer protection, payment processing, and the management of digital assets.
Rather than prescribing a specific technical solution, the paper establishes a foundation for assessing potential risks and developing appropriate safeguards. It organizes its findings into six overarching risk themes and 12 specific risk areas, providing a preliminary framework for assessing operational and compliance challenges associated with a potential U.S. digital dollar.
Tokenization, Financial Crime, and Regulatory Compliance
Tokenization—the process of representing an asset or currency digitally—introduces new considerations for how financial institutions identify, monitor, and verify transactions.
A tokenized digital dollar could create opportunities for more efficient payments and improved transaction monitoring. However, it could also introduce risks involving fraudulent transactions, counterfeit tokens, double spending, and the concealment of funds associated with illicit activity.
The working paper examines the implications for existing anti-money laundering (AML), countering the financing of terrorism (CFT), and Know Your Customer (KYC) requirements.
It considers how banks could adapt compliance procedures to address challenges involving token provenance, customer identity verification, and the movement of digital currency across financial networks.
Potential approaches explored include enhanced transaction monitoring, digital identity solutions, cryptographic verification, and greater coordination between financial institutions.
The paper also highlights the importance of clear regulatory guidance and appropriately defined responsibilities for preventing and responding to financial crime within a digital currency ecosystem.
Recordkeeping, Reporting, and Digital Currency Convertibility
Integrating a potential digital dollar into existing banking infrastructure would require financial institutions to evaluate their recordkeeping, reporting, and settlement processes.
The working paper examines how token-based transactions could affect established regulatory obligations and operational systems, particularly where digital currencies interact with traditional bank deposits and payment networks.
An important consideration is convertibility: the ability to exchange a digital dollar for other forms of money, including commercial bank deposits, privately issued stablecoins, and foreign central bank digital currencies.
These interactions could introduce credit, liquidity, settlement, and operational risks that financial institutions would need to manage.
The paper explores how improved data governance, integrated custody and payment systems, appropriate transaction controls, and common interoperability standards could help address these challenges.
It also emphasizes the need for regulatory clarity to ensure that banking institutions can meet their reporting and compliance obligations as new forms of digital money emerge.
Consumer Protection and the Existing Banking System
A digital dollar designed to enable rapid or instantaneous settlement could change how consumers and businesses transfer funds.
While faster payments offer potential benefits, transactions that settle immediately may be difficult to reverse when funds are sent to the wrong recipient or transferred fraudulently.
The working paper considers how these characteristics could affect consumer protection, dispute resolution, and the allocation of responsibility between financial institutions and payment system participants.
It examines whether existing regulatory frameworks, including Regulation E governing electronic fund transfers, would adequately address the characteristics of a potential digital dollar.
The research also highlights the importance of digital financial literacy.
Consumers would need to understand how digital wallets function, how to safeguard their funds, and what protections or limitations might apply when making digital currency transactions.
Clear communication, accessible financial education, and appropriately designed consumer safeguards could help build confidence and reduce risks associated with digital dollar use.
Digital Wallet Security and Custodial Risk Management
Safeguarding digital currency holdings is an important consideration for financial institutions participating in a potential digital dollar system.
The working paper examines the risks associated with digital wallets, private key management, and different approaches to custody.
Under a custodial model, regulated intermediaries would manage digital currency holdings or the cryptographic keys used to access them on behalf of customers. Under a self-custody model, individuals would assume greater responsibility for securing their funds.
Both approaches present distinct operational, security, and consumer protection considerations.
The paper identifies risks involving lost or compromised private keys, unauthorized wallet access, fraudulent transactions, and potential uncertainty over liability.
It explores safeguards such as multi-factor authentication, multi-signature authorization, multi-party computation, and enhanced fraud detection.
These measures could help financial institutions strengthen wallet security, protect customer assets, and establish more robust frameworks for digital currency custody.
Cybersecurity, Infrastructure Resilience, and Offline Payments
The development of a potential digital dollar would require secure and resilient infrastructure capable of supporting financial transactions across a wide range of institutions, devices, and networks.
The working paper examines cybersecurity threats associated with digital currency systems, including malicious network activity, compromised infrastructure, technical vulnerabilities, and distributed denial-of-service attacks.
It considers how established cybersecurity and risk management frameworks could be adapted to address the operational characteristics of tokenized currencies and distributed ledger technology.
Another important area of exploration is offline payments.
The ability to transact without continuous internet connectivity could improve payment accessibility and support financial inclusion, particularly in communities with limited connectivity or during network disruptions.
However, offline transactions introduce additional challenges involving fraud detection, counterfeiting, transaction verification, and compliance with financial crime prevention requirements.
The paper explores how secure hardware, authentication technologies, technical standards, and operational safeguards could help mitigate these risks while preserving the potential benefits of offline digital payments.
Third-Party Risk and the Role of Financial Institutions
A potential digital dollar ecosystem could involve a diverse network of financial institutions, payment service providers, technology companies, custodians, and digital wallet operators.
The participation of these organizations would create opportunities for private-sector innovation but could also introduce additional dependencies and operational risks.
The working paper examines how banks might adapt their third-party risk management practices to address the requirements of digital currency infrastructure.
Areas of consideration include vendor selection, due diligence, contractual responsibilities, operational oversight, continuous monitoring, and contingency planning.
It also explores the importance of coordinated standards and shared approaches to managing risks across interconnected financial networks.
Effective oversight of third-party providers would be essential to maintaining security, operational resilience, and accountability within a potential digital dollar system.
Building a Framework for Responsible Digital Dollar Innovation
The secure development of digital currency infrastructure requires an understanding of both its potential benefits and the risks that could accompany its introduction.
Through its preliminary risk framework, the Digital Dollar Project identifies areas where banks, regulators, policymakers, and technology providers could collaborate to strengthen operational safeguards and support informed decision-making.
The working paper emphasizes the importance of private-sector participation in digital currency research, particularly given the banking industry’s experience in financial risk management, regulatory compliance, and payment infrastructure.
Its findings are intended to encourage further research, public discussion, and collaboration rather than advocate for a particular CBDC design or policy outcome.
The paper focuses on operational and compliance risks; broader questions concerning privacy and surveillance, monetary policy, and financial stability are reserved for separate research.
By examining the practical considerations associated with a potential digital dollar, the research contributes to a more informed understanding of how digital currency innovation could be evaluated and managed within the U.S. financial system.
