In the letter, addressed to Rep. French Hill, R-Ark., and Rep. Bill Foster, D-Ill., Powell said a central bank digital currency, or CBDC, is not yet ready to roll out -- but members of the central bank are looking in that direction.
"We have assessed and continue to carefully analyze the costs and benefits of pursuing such an initiative," he wrote in the letter, dated Tuesday.
Powell's letter was a response to a proposal last month from Hill and Forster for a government-backed cryptocurrency.
Unlike Bitcoin, any proposed government digital currency would be backed by the Federal Reserve and would represent an unprecedented action in the global economy. Available to households and businesses, it would raise legal and operational issues but is possible well-suited to a large economy like the United States', experts say.
"We are carefully monitoring the activities of other central banks to identify potential benefits that may be relevant in the U.S. context," Powell added. "To date, our observation is that many of the challenges they hope to address do not apply to the U.S."
The idea for a digital dollar has been floated for months since Facebook announced plans earlier this year for its Libra cryptocurrency -- particularly over fears of a private, decentralized currency system outside government control.
"My main concern is that we are not caught flat-footed by fast moving developments in other countries that may put our economy at a competitive disadvantage and threaten the primacy of the U.S. dollar," Forster said Tuesday.