Fed Announces Launch of ‘FedNow’ Real-Time Payment System, Sparking Debate


from The Epoch Times:

The Federal Reserve has announced a timeline for the launch of its long-awaited FedNow payment service that will let banks offer customers instantly available funds and execute real-time payments, with critics flagging concerns like lack of cross-border payment processing and raising questions about surveillance.

The Fed announced on Wednesday that it will begin formal certification of participants in the FedNow system in April in anticipation of a July launch.

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First announced in 2019, FedNow will allow banks to instantly transfer payments across the financial system.

“With the launch drawing near, we urge financial institutions and their industry partners to move full steam ahead with preparations to join the FedNow Service,” Ken Montgomery, first vice president of the Federal Reserve Bank of Boston and FedNow program executive, said in a statement.

As banks and other financial institutions join the program, this will create a growing network with clearing and settlement features that lets businesses and individuals send and receive instant payments at any time of day.

Recipients using the system will have full access to funds immediately, making it easier to make time-sensitive payments.

Some analysts have said that FedNow could reduce demand for payday loans because customers who use the system would receive their pay immediately, without having to wait for checks to clear.

“The launch reflects an important milestone in the journey to help financial institutions serve customer needs for instant payments to better support nearly every aspect of our economy,” Tom Barkin, president of the Federal Reserve Bank of Richmond and the FedNow Program’s executive sponsor, said in a statement.

The system will have the capacity to support various types of transactions: consumer-to-consumer, consumer-to-merchant, merchant-to-merchant, and bank-to-bank.

Fed governor Michelle Bowman said last year that FedNow could offer some of the same benefits as a central bank digital currency (CBDC) and thus weakening the case for the adoption of a CBDC, which is, anyway, years away in the United States.

During congressional testimony in early March, Fed chair Jerome Powell was asked by a lawmaker whether there’s an advantage to the FedNow payment system over a CBDC or stablecoins that also tout faster payment services.

“A CBDC is going to be years in evaluation,” Powell replied. “And I think we can get this into the hands of the public very quickly, and we’ll have real-time payments in this country very very soon.”

FedNow “will enable all the banks—any bank in the United States, not just the big ones—to offer instantly available funds and real-time payments to their customers,” Powell said before the House Financial Services Committee on March 8. “That’s a great thing.”

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