FedNow Launches in US, Fed Insists Payment System ‘Not Related to a Digital Currency’

The Federal Reserve building in Washington, on March 19, 2019. Leah Millis/Reuters

The FedNow instant payment system from the U.S. Federal Reserve is now live, with the central bank claiming that the service will enable individuals and businesses to make quick payments and receive funds within seconds.

The Federal Reserve announced the launch of its interbank payment service on Thursday, which it claims will help banks and credit unions to instantly transfer money to their customers, according to a July 20 press release. The service is not directly offered to individuals and businesses. Instead, FedNow is a service that links banks and enables movement of funds from one account to another. People can sign up for the FedNow service through their financial institutions.

“The Federal Reserve built the FedNow Service to help make everyday payments over the coming years faster and more convenient,” said Federal Reserve chair Jerome H. Powell, per the release. The Federal Reserve has said that FedNow is “not related to a digital currency,” but that it is only a payment service allowing transfer of funds.

However, the Fed admitted that it is neutral on the matter of a central bank digital currency (CBDC) as the bank has made “no decision” on the issue. If an authorizing law were to come into effect, the Fed would “proceed with the issuance of a CBDC,” it said.

The FedNow service comes as many experts have raised concerns about CBDC financial systems being implemented in the United States. Some worry that the FedNow service may be a prelude to implementing a CBDC.

“The Federal Reserve’s ‘FedNow’ launches tomorrow. We are absolutely one step closer to a CBDC. Never trade convenience for freedom,” Layah Heilpern, author of “Undressing Bitcoin,” stated in a July 19 tweet.

Scott Santens, author of the book “Let There Be Money,” disputed this characterization, arguing that FedNow doesn’t have any smart contract ability and is not equivalent to a centralized digital dollar.

“FedNow implementation is one of the arguments against launching a CBDC. It’s so not a CBDC that it actually reduces the odds of starting a CBDC,” he wrote on Twitter.

“If conspiracy theorists who are afraid of CBDC had any sense at all, they’d argue that FedNow obviates the need for a CBDC. They’d welcome FedNow as an alternative that already exists, so don’t do a CBDC. But they have no sense,” Santens added.

CBDC Acceptance and Consequences

As fo CBDCs, at least 93 percent of central banks worldwide are already researching its implementation within their economies, according to a recent survey, with 24 central banks in emerging and advanced economies expected to have digital currencies in circulation by 2030.

In a July 20 article, the Heritage Foundation called those who push for the implementation of CBDCs as “the most terrifying of villains.”

It warned that CBDCs will allow the government to “monitor and control” every transaction of citizens. “That means every single cent can be tracked, traced, taxed, and stopped or even forced without your consent. Whether it’s paying a babysitter, borrowing a few dollars for lunch from a friend, tipping a caddy on the golf course, or subscribing to a conservative blog, Uncle Sam will know.”

The think-tank points out that CBDCs can not only limit spending of citizens but it also can limit their savings. For instance, the government could force people to spend their money by placing an expiration date on their funds.

CBDCs make it easy for the government to punish individuals they see to be dissidents or who are accused of spreading “misinformation.” Such people can have their bank accounts frozen, it stated, while pointing out that many people have been de-platformed and even fired over the past years for questioning the efficacy and safety of mRNA injections.

“You need not be arrested to be severely punished in this utopia, and the mere threat would chill speech to silence,” the foundation said.

The Federal Reserve has clarified that the FedNow service will not give the central bank access to people’s bank accounts. “The Federal Reserve and the FedNow Service cannot access individuals’ bank accounts or control how they choose to spend their money,” the central bank said.

FedNow Participants, Intensifying Competition

According to the Fed, 35 banks and credit unions have already adopted FedNow, including big names like JP Morgan Chase, Wells Fargo, Inland Northwest Bank, Consumers Cooperative Credit Union, and BNY Mellon. These institutions now offer instant payment capabilities through FedNow.

The U.S. Department of the Treasury’s Bureau of the Fiscal Service has also adopted the payment system. In addition, 16 service providers that support payment processing for financial institutions have signed up as well.

The central bank said it is committed to working with over 9,000 banks and credit unions across America to bring the service to their customers.

FedNow can be a challenge to The Clearing House’s real-time payment (RTP) platform that was launched in 2017. In a July 17 post at Pymnts, Karen Webster, the CEO of Market Platform Dynamics, points out that in the six years that RTP has been live, 274 financial institutions have utilized the payment system.

However, even now, the number of transactions are too low. “RTP hasn’t yet achieved the critical mass needed to ignite its payments platform. The introduction of FedNow creates competition for RTP volume and potentially the real-time payments infrastructure for new use cases like merchant payments,” she wrote.