While the Federal Reserve’s paper on potentially adopting a central bank digital currency (CBDC) will advance debate in Washington, its decision to kick the issue to Congress means an official US digital dollar is still several years away.

The US central bank on Thursday released a much-anticipated paper on the pros and cons of adopting a digital dollar, a digital version of cash in your pocket, in which it refused to take a stance and said Congress should decide the matter.

Many CBDC enthusiasts saw the report as a key milestone in developing some form of digital dollar policy, but with lawmakers confused and divided on the issue — even within their own parties — analysts said they should not hold their breath.

“The paper ... is light on conclusions and reinforces our view that a Fed-backed CBDC is — at best — years away from launch,” Isaac Boltansky, director of policy research for brokerage BTIG, wrote in a note. “We are bearish on a legislative solution emerging.”

Unlike cryptocurrencies, which are run by private actors, a CBDC would be issued and backed by the central bank. It would differ from electronic transactions that happen through large commercial banks by giving consumers a direct claim to the central bank, similar to physical cash.

A digital dollar could transform the financial system, speeding up payments globally and giving consumers greater access to the financial system, the Fed said. But it cautioned that a poorly designed digital dollar could weaken banks, destabilize the financial system and create privacy issues.

About 90 countries including China, are exploring or launching their own CBDCs, according to the Atlantic Council, sparking concern among some that the United States will cede the dominance of the global financial system if it does not digitize the dollar, currently the global reserve currency.

In an already fiercely divided political climate, reaching a consensus on this tangle of thorny issues “seems like a long shot,” JPMorgan chief economist Michael Feroli wrote in a note.

While some Republicans are eager for the Fed to embrace innovative technology, others have expressed concern over the central bank expanding its footprint and competing with private banks. “I’m genuinely undecided whether there is a legitimate need for a CBDC,” Republican U.S. Senator Cynthia Lummis, a leading digital currency proponent, tweeted following the Fed’s report.

Some Democratic progressives like Senate Banking Committee Chairman Sherrod Brown support a digital dollar that would boost financial inclusion, but other Democrats have flagged concerns that a digital dollar could be used for illicit purposes.

Brown, who would play a leading role in drawing up legislation in the thinly divided Senate, said on Thursday that the report was a “a good first step,” while some other lawmakers said they were looking forward to working on legislation.

But even if Congress was able to agree on and pass legislation this year, the rollout of a digital dollar would require a lengthy pilot and implementation phase.

“Even if you start today, we’re still going to be a couple of years away from this becoming a reality,” said Jonathan McCollum, chair of federal government relations for Davidoff Hutcher & Citron, who has lobbied lawmakers to get started.

As lawmakers, regulators and the White House debate the issue, the private sector is likely to move ahead with products that may weaken the argument for a digital dollar, Ian Katz, managing director of Capital Alpha Partners, said in a note.

“If it finally happens years down the road, a Fed CBDC would be less of a world-changer than it would be now,” he added.

—Reuters