The United States Federal Reserve Vice Chair Lael Brainard announced today that the long-awaited instant payments system will be ready for use by summer 2023, mitigating the need for CBDC development. The service is said to process and settle individual payments within seconds, 24 hours a day, 7 days a week, 365 days a year.
"The benefits of instant payments are increasingly important to consumers and businesses, and the ability to provide this service will be critical for financial institutions to remain competitive," said Ken Montgomery, Federal Reserve Bank of Boston first vice president and FedNow Service program executive, in a press release. "Next year, financial institutions will be able to use the FedNow Service as a springboard to provide innovative solutions to their customers."
FedNow, which has been in the works since 2015, is unlikely to launch with all features built in – the system would have to undergo a series of upgrades to achieve full interoperability with existing payments solutions. Additional enhancements would be added expeditiously after the initial launch, allowing for improvements to be made in response to industry needs or changes in technology.
Besides enabling consumers and businesses to settle transactions instantly, the service would provide other benefits, similar to the ones offered by CBDCs. FedNow can be used to transmit governmental aid to Americans and pay suppliers on time at much lower costs than in the case of existing payment systems. Additionally, the service is expected to cut demand for predatory payday loans since consumers won’t have to wait for two business days to clear the check.
In a May hearing about the risks and benefits of a hypothetical U.S. CBDC, Lael Brainard told representatives that implementing a central bank digital currency would likely take five years, plus the project would need to secure Congress approval first. Given the lengthy process of CBDC development, the whole venture is more about gaining the first-mover advantage than addressing the current needs of the U.S. financial system.
According to Brainard, the greatest risk of not delivering the CBDC on time is that stablecoins may “become the dominant form of US digital dollars,” which can eventually result in a “fragmentation of the payment system.” Moreover, the success of the rival CBDCs currently developed by the EU and China can undermine the U.S. dollar’s hegemony as the global reserve currency, Brainard warned.
Her reasoning confirms the crypto community’s view on CBDCs as an inherently hostile initiative that threatens financial freedom even more than fiat does. “In fact, CBDCs are systems of control, worse than bank accounts, certainly worse than paper cash, worse than stable coins, and much worse than Bitcoin,” tweeted Blockstream CEO Adam Back.
So far, over 120 institutions have signed up to participate in FedNow pilot program, and the recent newcomers include U.S. Bank, Exchange Bank, Alacriti Payments LLC, ECS Fin Inc., Form3, and ModusBox, Inc.
"Today, with the FedNow launch date in sight, we are pleased with the collaboration and dedication our pilot participants have brought to advance modern payments in America," said Esther George, CEO of the Federal Reserve Bank of Kansas City.
