Fed's Answer to Crypto 'FedNow' Instant Payments Announces Services by July 2023

The Federal Reserve is on pace to deliver FedNow, an instant payment service that will settle U.S. payments in seconds. Federal Reserve Banks have narrowed the launch date of their FedNow Service between May and July 2023, specifically targeting a full production rollout. FedNow Pilot Program began technical testing for its anticipated instant payment service in September, confirming the previously communicated launch window for 2023.

"As a result of FedNow, households and businesses will be able to send instant payments at any time on any day, resulting in substantial gains for households and businesses. "Recipients will be able to use the funds immediately to make other payments or to manage their cash flow," Fed Vice Chair Lael Brainard said.

In order to ensure the FedNow Service will run smoothly next spring, she encouraged financial institutions, service providers, and software companies to "adopt it now," even though a few banks and institutions have already tested it. "It is now time for all key stakeholders to devote the resources necessary to support instant payments. Consumers and businesses could benefit from FedNow's instant payments, which could be similar to a digital currency issued by a central bank." Brainard said.

The Fed has made no decision on whether the U.S. should adopt a CBDC despite releasing a study on one. After the FedNow system is released, officials are considering what needs a CBDC would fill. According to Fed Governor Bowman, FedNow might offer similar benefits to a digital dollar issued by the Federal Reserve. At the same time, senior administration officials have also cited FedNow as an alternative to a digital currency. In his view, FedNow eliminates the business case for a stablecoin-based consumer payment system. In addition to reducing costs and speeding up the settlement process, he stated "FedNow could also slow the growth of stablecoins, addressing policy concerns." "It is becoming increasingly important for consumers and businesses to be able to make instant payments, so financial institutions must be able to offer this service," Ken Montgomery, FedNow Service program executive at the Federal Reserve Bank of Boston, said. "As part of the FedNow implementation process, back-office processes will be upgraded, accounting procedures will be evaluated to accommodate a sevenday workweek, liquidity providers will be arranged, and new technology will be implemented to allow customers to interact with FedNow on demand," he said.

In conclusion With late payment fees avoided, or working capital freed up for small businesses, Americans and small businesses that struggle with cash flow are said to benefit from making funds immediately available. Because consumers will not have to wait for a check to clear, FedNow could also reduce the demand for payday loans. Businesses might also benefit from better paying suppliers on time, and they might embrace it as a more cost-effective and reliable method for accepting consumer payments.

Additionally, the FedNow system would allow the government to transmit emergency relief payments to Americans faster, so citizens would not have to wait for their checks as they did during the pandemic. Faster payments also reduce systemic risk. It was feared that the financial system would collapse during the financial crisis because banks would not trust other banks to honor intraday credit agreements. —Crypto Weekly