The proposed digital currency system would work in a similar way.
"When somebody wants to transact in the system, instead of you trying to acquire a bitcoin, you simply say, here are some U.S. dollars," the source said. "It's sort of a bitcoin but without the bitcoin."
IBM is one of a number of tech companies looking to expand the use of the blockchain technology beyond bitcoin, the digital currency launched six years ago that has spurred a following among investors and tech enthusiasts.
The company has been in informal discussions about a blockchain-tied cash system with a number of central banks, including the U.S. Federal Reserve, the source said. If central banks approve the concept, IBM will build the secure and scalable infrastructure for the project.
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IBM media relations office did not respond to Reuters emails about this story and the Fed declined to comment.
However, there are signs that central banks are already thinking about the innovations that could arise through digital currency systems. The Bank of England, in a report in September 2014, described the blockchain's open ledger as a "significant innovation" that could transform the financial system more generally.
Instead of having ledgers maintained by banks that act as a record of an individual's transactions, this kind of open ledger would be viewable by everyone using the system, and would use an agreed-upon process for entering transactions into the system.
The project is still in the early stages and constantly evolving, the source said. It is also unclear how concerns about money-laundering and criminal activities that have hamstrung bitcoin.
Unlike bitcoin, where the network is decentralized and there is no overseer, the proposed digital currency system would be controlled by central banks, the source said.
"These coins will be part of the money supply," the source said. "It's the same money, just not a dollar bill with a serial number on it, but a token that sits on this blockchain."
According to the plans, the digital currency could be linked to a person's bank account, possibly using a wallet software that would integrate that account with the proposed digital currency ledger.
"We are at a tipping point right now. It's making a lot more sense for some type of digital cash in the system, that not only saves our government money, but also is a lot more convenient and secure for individuals to use," the source said.