By releasing a vague blueprint of pros and cons on Thursday, the Federal Reserve has taken the first step towards potentially pursuing a digital dollar.

The hard part will involve the Fed sorting through how to design a central bank digital coin (CBDC) in a way that meets approval of Congress and the White House, while smoothly transitioning into the payment and banking systems without disruption.

The Fed insists it won’t move forward without the “clear support” of both the executive and legislative branches, “ideally in the form of a specific authorizing law,” Fed officials said in the CBDC report.

Congress generally appears open to authorizing a CBDC, though the Fed will need to sort through details to satiate both parties. A White House representative did not immediately respond to Yahoo Finance's request for comment.

Senate Banking Committee Chairman Sherrod Brown (D-OH) called the Fed’s report a good first step towards designing a central bank digital currency that will bring more Americans into our banking system. “I look forward to working with the Federal Reserve and the Biden Administration to ensure that workers, small business, community banks, and credit unions can continue to participate in our digital economy,” Brown said.

Separately, Republican Senator Pat Toomey, a ranking Banking Committee member said he’s “encouraged” by the report and calls is an “an important step by the Fed in acknowledging the permanence of cryptocurrencies and their underlying technologies.”However, he expressed concerns about how the Fed will protect Americans’ privacy.

“I’m concerned the Fed does not clearly explain how it would protect consumer transaction data,” he added. “There’s also a question in my mind whether the Fed’s report implies that a CBDC would not allow for direct peer-to-peer transactions. This characteristic is fundamental.”

Toomey previously asked Fed Chair Jerome Powell for assurance on securing privacy protections for individuals as it looks to design a CBDC. Powell responded that he “strongly believe [s] that individual privacy is of fundamental importance in the design of any potential CBDC,” and that he’d be soliciting feedback.

‘Don’t hold your breath’

Michael Feroli, chief U.S. economist at JPMorgan, thinks it will be tough to get a CBDC approved. He pointed to the Fed’s insistence that it would only issue a CBDC with clear support from the executive branch and from Congress, which remains deadlocked on a range of critical issues central to the Biden administration’s agenda.

“In the current political environment, that seems like a long shot,” Feroli wrote in a note to clients with the sardonic title: “Don't hold your breath waiting for Fedcoin.”

Feroli also suggested the report’s lack of concrete recommendations were likely due to a split within the Fed over whether a CBDC is worth pursuing. Yet Cowen analyst Jaret Seiburg thinks it’s just a matter of when, not if.

A digital dollar “ is inevitable, though the Fed is careful to avoid taking a position,” Seiburg said. “Though it appears we are at least another three to five years from the start of a pilot program.”

A possible wild card is the Fed’s upcoming instant payment system, Fed Now, set to launch next year, the analyst said. That will offer many of the same benefits of a digital dollar, namely permitting transactions to settle instantly.

“Rapid adoption of Fed Now by consumers and merchants could satisfy many of the market forces that are pushing the Fed toward a digital dollar,” Seiburg added. Yet a CBDC may be better to speed up international payments, especially for global trade and to ensure the dollar remains the reserve currency, he added.

Fed’s CBDC and private crypto

Cryptocurrency’s recent plunge, with Bitcoin and Ether swooning by double digits, underscored the risks associated with the central bank involving itself in a market that’s notoriously volatile. Many traders in the crypto sphere are selling to hide out in stablecoins; a CBDC could be a competitor for private stablecoins and a go to in times of market volatility and uncertainty.

“A digital dollar will be in a strong position versus non-CBDC stablecoins,” says Salman Banaei, Head of Public Policy, North America at Chainalysis. He argued the former would be characterized by “essentially zero credit and liquidity risk, while being the easiest to use USD stablecoin because it would be readily accepted across the financial system.”

He added a CBDC would be the safest digital asset available to the general public, because it would be a liability on the Fed’s balance sheet instead of a commercial bank’s balance sheet, which is considered riskier.

“It would be the most desirable form of holding cash, especially during periods of market turbulence where a bank or other financial institution’s creditworthiness might be called into question,” Banaei added.

The analyst also suggested international standards for settling payments would create a large incentive to settle payments, and financial transactions with the digital dollar.