Fresh Speculation Arises as US Federal Reserve Debuts FedNow Instant Payments Service

The US Federal Reserve recently unveiled the FedNow Service system to facilitate instant payments; however, experts warn that the system might become a precursor to the infrastructure for a central bank digital currency (CBDC).

Launched on Thursday, July 20, the FedNow service aims to enhance money movement in the US economy by offering various benefits to consumers and businesses. It will enable immediate access to paychecks, facilitate last-minute bill payments, and expedite government payments to individuals.

“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.

“Over time, as more banks choose to use this new tool, the benefits to individuals and businesses will include enabling a person to immediately receive a paycheck or a company to instantly access funds when an invoice is paid.”

While this may seem like a positive step as it aligns with a crucial goal of the digital asset industry – enabling fast and accessible money transfers at any time. 

Crypto enthusiasts believe it is another way for the government to lay the structure for government-issued CBDCs. 

“This is a payment system, not a digital token or a CBDC, but it is something that can be used to facilitate the creation of a CBDC,” said Jim Bianco, president of Bianco Research.

However, the Fed denied the notion that FedNow is tied to an underlying intent in the July 10 FAQs.

Exploring CBDC and Concerns Surrounding FedNow in the United States

Although the United States has yet to adopt any central bank digital currencies (CBDCs),  various initiatives, including the New York Federal Reserve’s 12-week program to test a simulated digital dollar, have been explored in the government’s interest in digital currency.

While Federal Reserve officials like Fed Chair Jerome Powell and Fed Governor Michelle Bowman have been cautious about a digital dollar or CBDC, it is worth noting that officials at the Fed have actively been studying the potential for a government-issued digital currency. 

Fed Chair Jerome Powell himself has repeatedly expressed support for exploring the idea.

With many cryptocurrency experts speculating that creating a CBDC could be the underlying intent behind FedNow, concerns have been raised about government control over a digital token, leading to censorship and permissions of specific transactions or individuals. 

“If FedNow does indeed become a programmable CBDC, then it could theoretically be used to block payments for items the government doesn’t favor or to cut out people from the financial system who are seen as threatening in some way to governing authorities, aka, political opponents,” said Dave Weisberger, CEO and co-founder of CoinRoutes.

Some banks have also expressed skepticism about the FedNow system, criticizing its lack of leadership structure and clear business plan, as it is financed through taxpayer money. 

Moreover, an unlikely alliance between traditional banks and blockchain enthusiasts has emerged, with both expressing skepticism towards FedNow.

“The problem, of course, is that the government is going to have to bit ways over the digital token, and they’re going to be able to permit them and censor them for certain types of people in certain types of ways or certain types of transactions,” said Bianco.

The launch of FedNow has sparked debates, with some viewing it as a potential step towards an eventual central bank digital currency and a cashless society, raising concerns about government access to every transaction and the potential for authoritarianism and abuse.