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(Kitco News) - The Federal Reserve has announced that FedNow, its new system for instant payments, is live, allowing banks and credit unions “of all sizes” to sign up and utilize the tool “to instantly transfer money for their customers, any time of the day, on any day of the year.”
“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 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.”
The central bank said the U.S. Department of the Treasury's Bureau of the Fiscal Service and 35 early-adopting banks and credit unions are already prepared to utilize the system, and 16 service providers are ready to support payment processing.
“When fully available, instant payments will provide substantial benefits for consumers and businesses, such as when rapid access to funds is useful, or when just-in-time payments help manage cash flows in bank accounts,” the press release said. “For example, individuals can instantly receive their paychecks and use them the same day, and small businesses can more efficiently manage cash flows without processing delays.”
The system has been designed so that bank and credit union customers will be able to sign up for the service through their financial institution's mobile app, website, and other interfaces to send instant payments quickly and securely.
The FedNow Service, which is essentially an interbank payment system, will operate alongside the Federal Reserves' other payments services, including Fedwire and FedACH.
As part of the launch of the new service, and in an effort to avoid public backlash due to the contentious topic of central bank digital currencies (CBDCs), the Fed published a Twitter post clarifying that the FedNow Service has no relation with CBDCs.
#FedFAQ: Is the FedNow Service replacing cash? Is it a central bank digital currency?
— Federal Reserve (@federalreserve) July 19, 2023
Learn more about the #FedNow Service:https://t.co/ACBjfEhR4A https://t.co/IXF8dyy46S pic.twitter.com/7CUaYZYyM9
“The FedNows Service is not related to a digital currency,” the central bank said. “The FedNow service is a payment service the Federal Reserve is making available for banks and credit unions to transfer funds for their customers… The FedNow Service is neither a form of currency nor a step toward eliminating any form of payment, including cash.”
The central bank added it “has made no decision on issuing a CBDC and would only proceed with the issuance of a CBDC with an authorizing law." The release quoted Chair Powell's testimony before the House Financial Services Committee in March when he affirmed that a CBDC is "something we would certainly need Congressional approval for."
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| Federal Reserve reveals the 57 companies cleared to use FedNow |
The clarification comes as U.S. lawmakers have pushed back against the creation of a digital dollar. Legislation has been introduced in both the House of Representatives and the Senate seeking to prevent the Federal Reserve from issuing a CBDC, and Presidential candidate Ron DeSantis recently said that if he is elected, he would ban CBDCs.
As the Governor of Florida, DeSantis introduced and eventually signed into law an anti-CBDC bill that bans the use of a digital dollar or any CBDC issued by a foreign government in the state.
The clarification from the Federal Reserve shows that they are aware of the negative sentiment surrounding a digital dollar, and want to assure citizens that such a payment vehicle will only come about through an act of Congress.
