While the Biden administration lends support to the research and development of a digital currency, the Fed is more reluctant. The Federal Reserve of the United States would be more inclined towards the establishment of a digital and instant payment system.
Fed: its digital payment system coming soon
The Fed mentioned 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 ongoing. The project is now a pilot program. FedNow is the U.S. central bank’s instant payment service. It allows real-time payments (RTP for Real-time payments), safe and effective. The service caters to financial institutions of any size across the United States and 24/7/365. FedNow is also aiming for interoperability between national payment systems and cross-border payment capabilities.
Concretely, when a financial institution chooses to use the FedNow service, customers will be able to send RTPs online. The recipients on their side will have immediate access to the funds. Instant payments, funds available anytime and anywhere, full traceability of transactions… FedNow benefits from the advantages of crypto payments in some respects. But it remains a centralized and banked system. The Fed originally announced an implementation for 2023 or 2024. But Federal Reserve Governor 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 the digital dollar, so to speak. No, it is not a crypto. Simply because the currency is not blockchain-based. Rather, it is legal tender issued by the central bank, but in digital form. And this is the whole difference with cryptocurrencies. These are not managed by a central issuing and regulating authority. Although the Biden administration approves of the project, some Fed governors, notably Michelle Bowman, have made their reluctance to the CBDC clear.
FedCoin, as it is also known, could potentially provide safer, faster, and cheaper payments. And this, even for cross-border payments. For Bowman, FedNow is already delivering all of these benefits in addition to driving innovation and expanding financial inclusion. She says, “I expect FedNow to address the issues that some have raised regarding the need for a CBDC. “. She signs and persists: it is better to concentrate on FedNow.
For the Fed, the establishment of a digital payment system is becoming urgent. Thanks to which, the United States can align itself with other advanced economies like 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 demands. At the same time, the Fed continues to work on crypto regulatory frameworks.
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