The Federal reserve bank of Boston, in collaboration with Massachusetts Institute of Technology (MIT), have published a research paper that could serve as the foundation to create a government-backed crypto currency. This collaboration, referred to as Project Hamilton, focuses on technological experimentation that could lead to the creation of central bank digital currency, or CBDC. The whitepaper does highlight that this research is separate from the Federal Reserve's Board's evaluation of the pros and cons of a CBDC.
"It is critical to understand how emerging technologies could support a CBDC and what challenges remain," said Boston Fed Executive Vice President and Interim Chief Operating Officer Jim Cunha. "This collaboration between MIT and our technologists has created a scalable CBDC research model that allows us to learn more about these technologies and the choices that should be considered when designing a CBDC."
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Why technological experimentations, when crypto currencies already exist?

There are two main problems with existing crypto currencies (security is a different topic):
  1. Power consumed to find the next unique hash
  2. Settlement time to reach consensus, before the block is added to the chain
Consider the following, currently, the Bitcoin network is capable of handling just 7 transactions per second and Ether just 25, according to research by Shihab Hazari, a software developer and former researcher at Ontario Tech University. Solana blockchain can process an industry-leading 65,000 transactions per second (TPS). Since, its launch in March 2020, Solana has racked ~$50 billion in transactions and ~$10 billion worth of crypto, according to DeFi Llama.
Visa's CFO Vasant Prabhu recently told Barron's that, “True cryptos aren’t fast enough for purchase transactions,” he said. “The cost of doing a transaction using fiat currency on the Visa network is minuscule compared to the cost for Bitcoin and Ether.”
So how does Fed & MIT mitigate this lag?

The whitepaper points to a multi-phased project, released as open-source license for anyone to inspect, modify, and enhance the code at OpenCBDC. Phase-1 of the project is focused on developing software to process digital transactions. The results are quite promising.
The resulting code from Phase-1 is capable of handling 1.7 million TPS. Researchers also highlighted that majority of the transactions settled in under two seconds.  
To put this achievement in perspective, albeit theoretical, credit card payments in 2018 totaled $44.7 billion in the U.S. alone and credit cards can settle 5,000 TPS. 5K vs 1.7M TPS may be seem like a no brainer to expedite adoption; considerations have to be made on infrastructure, scale and security controls that credit cards have in place.  

That's what the second phase of the project will focus on i.e explore more complex capabilities and issues, such as cybersecurity and how to balance user privacy with the need for transparency to deter criminal activity. 

How will this impact existing Fiat currency and financial institutions?

Just like with every new technology shift, there are risks and opportunities.
“While central banks’ CBDC initiatives are not intended to disrupt the banking system, they will likely have unintended disruptive consequences,” Morgan Stanley’s Ahya said. “The more widely digital currencies are accepted, the more opportunity for innovation and the greater the scope for disruption to the financial system.”
Digital currencies may have major consequences for commercial banks, especially if users prefer to hold their currency in digital wallets provided by a firms like PayPal or Venmo. “This substitution effect could reduce the aggregate amount of deposits in the banking system,” the Fed report said.

On the other hand, digital currencies could be easier and less expensive to access for people without bank accounts. Furthermore, if the digital currency is backed by the Fed's, then unlike a bank or the companies issuing stable coins, they can't simply go out of business. This also opens the doors to a global economy, utilizing common digital assets.

For U.S in particular, there is also the ever looming threat from China. With the launch of a digital yuan, there are concerns that China could undermine the dollar’s status as the world’s reserve currency. A Bank of America report notes that issuing digital dollars would let the U.S. currency “remain highly competitive … relative to other currencies.”