There are worries that the US Federal Reserve's FedNow quick payment service will prematurely extinguish the nation's interest in a digital currency. Yet, FedNow will start in July.
Financial institutions in the United States claim that FedNow, which has been under development since 2019, is the quickest method for making payments 24 hours a day, 365 days a year. Payments made using the service will be instantly received by banks, payment providers, and individual users.
Ken Montgomery, the first Vice President of the Federal Reserve Bank of Boston, said, "We couldn't be more excited about the impending FedNow launch, which will enable every participating financial institution, from the smallest to the largest and from all corners of the country, to offer a modern instant payment solution. All American financial institutions were urged to "go full steam ahead with preparations to join the FedNow Service" by Montgomery, the FedNow programme executive.
Under a customer testing and certification scheme, the Fed will start certifying early adopters in a few weeks. The programme has already piqued the interest of several financial institutions, some of the biggest payment processors, and the U.S. Treasury, claims the central bank.
The issue of immediate payments will be resolved by FedNow, which has been a problem for the banking sector globally for many years. For the purpose of enabling real-time payments, many firms have developed their own systems, such as VISA and Mastercard, which offer Direct and Send, respectively. Real-time payments, which aim to offer rapid payments, are managed in the US by The Clearing House, a group of banks and payment processors.
The use of central bank digital currencies (CBDCs), whose main selling point is real-time payments, is one of the newer solutions to this problem. FedNow is the U.S. Fed chair Jerome Powell's reaction to the need for a CBDC, and he has rejected the necessity for a digital currency.
Whether FedNow will serve as a pioneer for the digital dollar or obstruct the CBDC's advancement in the biggest economy in the world is still up for debate. For now, what's certain is that it will disrupt the payments environment in the U.S.
"We maintain that FedNow will mark a significant shift in how customers utilise electronic money. Instant settlement is offered, which reduces clearance risk. Moreover, it will be less expensive than debit interchange, according to a note to clients published on Wednesday by Cowen Inc. analyst Jaret Seiberg of T.D. Ameritrade.
This latest update on CBDC will also affect crypto regulation.