Officials will release a paper and solicit public comment, but are unlikely to decide soon on government-backed cryptocurrency.

The Federal Reserve plans as early as this week to launch a review of the potential benefits and risks of issuing a U.S. digital currency, as central banks around the world experiment with the potential new form of money.

Fed officials are divided on the matter, making it unlikely they will decide any time soon on whether to create a digital dollar. Unlike private cryptocurrencies like bitcoin, a Fed version would be issued by and backed by the U.S. central bank, a government entity, as are U.S. paper dollar bills and coins.

Advocates say a Fed digital dollar could make it faster and cheaper to move money around the financial system, bring into it people who lack bank accounts and provide an efficient way for the government to distribute financial aid.

Another motivating consideration: keeping up with other major jurisdictions considering a digital currency for domestic and international payments, Fed. Gov. Lael Brainard said in remarks before the National Association for Business Economics on Sept. 27.

“It’s just very hard for me to imagine that the U.S., given the status of the dollar as a dominant currency in international payments, wouldn’t come to the table in that circumstance with a similar kind of an offering,” she said.

However, Fed Chairman Jerome Powell has indicated he sees reason for caution. He said last month it is more important to get the digital dollar right than to be first to market, in part because of the dollar’s critical global role.

He and other Fed officials have said the Fed’s research is early and exploratory. He said at a Sept. 22 press conference that they would only consider issuing a so-called central bank digital currency—or CBDC—if they believed there were “clear and tangible benefits that outweigh any costs and risks.”

Mr. Powell has pointed to other challenges, noting many Americans actively use and prefer cash. He also said there are privacy issues that would need to be addressed, since a Fed CBDC system would in theory allow the central bank to see what every user did with the currency.

“It’s our obligation to do the work both on technology and on public policy to form a basis for making an informed decision,” he said last month.

Randal Quarles, the central bank’s pointman on financial regulation, has voiced more skepticism about the need for a Fed digital currency. He said this summer that the U.S. dollar is already “highly digitized” and expressed doubts that a Fed CBDC would help draw people without bank accounts into the financial system—a goal that can be accomplished through other means, he said.

“Before we get carried away with the novelty, I think we need to subject the promises of a CBDC to a careful critical analysis,” he said, speaking at an event hosted by the Utah Bankers Association.