The Federal Reserve is set to launch its real-time payment system, FedNow, in July, according to a statement released on Wednesday. The system is designed to address the current delays in clearing financial transactions between institutions, with the first participants expected to be certified at the beginning of next month. FedNow will operate 24/7 and provide immediate, full access to funds.
Ken Montgomery, COO at the Federal Reserve Bank of Boston, said the new system would offer a “modern instant payment solution.” However, some experts view FedNow as a government challenge to the crypto sector’s instant-transaction advantages. They also suggest the system might be of use to crypto investors as a way to fund and cash out of trades without leaving cash or digital dollars on a trading platform.
FedNow is also seen as a potential precursor to a central bank digital currency (CBDC), though it could undermine one of the digital dollar’s key strengths – the ability to transfer instantly. Fed officials have said that a future US CBDC would require the support of Congress, the Biden administration, and the public.
The proliferation of certain private stablecoins, such as the now-defunct Diem (formerly Libra) project, has been cited as a reason for a real-time payment network. Federal officials, including Fed Chair Jerome Powell, have also expressed concerns about these stablecoins and their potential impact on the financial system.
It’s worth noting that the Fed’s new payment system isn’t the first of its kind. The banking industry launched its own real-time payment (RTP) network in 2017, which has been operating successfully for several years and offers similar features to FedNow.
Financial institutions and their industry partners have been urged to prepare for joining the FedNow service by Montgomery. The adoption of this new payment system by financial institutions is expected to lead to a more streamlined and efficient process for clearing financial transactions. However, it remains to be seen how the adoption of FedNow will impact the banking and crypto sectors in the long run.