The Federal Reserve is all ready to launch an indigenous payment service called FedNow. The payment service is the Fed’s attempt to deliver a system that allows for seamless settlement of U.S. payments within seconds. The FedNow payment service will eliminate the need for the Fed to launch its own digital currency or CBDC.
Speaking about the proposed payment service, Fed Vice Chair Lael Brainard stated that “the FedNow Service will revolutionize how everyday payments are executed throughout the economy. The FedNow payment system will greatly benefit households and businesses as it would enable them to initiate instant payments any time, any day. More importantly, the funds sent via FedNow are made available immediately so other users can make other payments while managing cash outflow efficiently.”
While there isn’t yet a concrete timeline for the launch, the Fed is believed to be testing the payment service in partnership with a few banks and institutions. They are now calling on financial institutions, software companies, and service providers to integrate the FedNow service as they believe that such a move will allow the system to work seamlessly after its launch.
The FedNow Payment Service at a glance
The FedNow payment service is designed to enable businesses and consumers to make payments instantly. Analysts believe the new payment service from the Fed has the potential to offer the same benefits as a central bank digital currency.
According to Fed Governor Michelle Bowman, “the FedNow payment service is going to deliver many of the unique benefits envisioned with the Federal Reserve-Issued digital dollar.”
Some senior officials have dubbed the FedNow service an alternative to a CBDC. While the Fed has hitherto released a study on the need for an indigenous CBDC, it is yet to decide whether the government should adopt one.
With the launch of The FedNow system billed for next year, officials are optimistic that the country may not need a CBDC if the FedNow system works as intended.
A Cowen analyst named Jaret Seiberg believes that the FedNow system will eliminate the need for the Fed to push for a stablecoin-based consumer payment service, especially considering that the payment system offers the same cost-reduction and settlement speed associated with stablecoin payments. Also, analysts believe that this system will address all the bottlenecks and policy lapses regarding stablecoins.