While the Biden administration is lending its support to the research and development of a digital currency, the Fed is showing more reluctance. The US Federal Reserve would be more focused on the implementation of a digital and instant payment system.
Fed: its digital payment system coming soon
The Fed talks about its digital payment system called FedNow in 2013. In the incubation phase for 7 years, the project was approved by the Board of Governors in 2020. Development is taking its course. The project is now a pilot program. FedNow is the instant payment service of the Central Bank of the United States. It allows real-time payments (RTP for Real-time payments), safe and effective. The service is aimed at financial institutions of any size throughout the United States and 24/7/365. FedNow also aims at interoperability between national payment systems and cross-border payment capabilities.
Specifically, when a financial institution chooses to use the FedNow service, customers will be able to send RTP online. The recipients will have immediate access to the funds. Instant payments, funds available anytime and anywhere, complete traceability of transactions… FedNow benefits from the advantages of crypto payments in some respects. But it remains a centralized and bankable system. The Fed had initially announced an implementation for 2023 or 2024. But the governor of the Federal Reserve, Michelle Bowman, has just confirmed a launch for mid-2023.
What about the digital dollar (CBDC)?
The US CBDC or US Central Bank Digital Currency is, so to speak, the digital dollar. No, it’s not a crypto. Simply because the currency is not based on the blockchain. Rather, it is the legal tender issued by the central bank, but in digital form. And that’s the difference with cryptocurrencies. The latter are not managed by a central issuing and regulatory authority. Although the Biden administration approves the project, some Fed governors, including Michelle Bowman, are clearly expressing their reluctance in relation to the CBDC.
FedCoin, as it is also called, could potentially provide safer, faster and cheaper payments. And this, even for cross-border payments. For Bowman, FedNow already brings all these benefits in addition to stimulating innovation and expanding financial inclusion. She says: “I expect FedNow to resolve the issues that some have raised regarding the need for a CBDC. ». She signs and persists: better to focus on FedNow.
For the Fed, the implementation of a digital payment system is becoming urgent. Thanks to this, the United States can align itself with other advanced economies such as the United Kingdom and Europe. Banks are not obliged to adhere to FedNow. They are free to make their strategic decisions based in particular on consumer requests. At the same time, the Fed continues to work on the regulatory frameworks for cryptos.
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