The US seems to be catching up with some of the more digitally advanced economies in Asia like India and China with FedNow.
The announcement that the long-awaited FedNow Instant Payment system will finally be operational in July was made by the Federal Reserve of the United States.
According to the information (1) provided to shed light on the many aspects of the apex financial bank’s preparedness for launch, the screening of participants, which their formal certification will follow, would get underway at the start of April.
The FedNow is the government’s recognized response to the advances currently being embodied by stablecoins and central banks’ digital currencies (CBDCs).
Even while it is expected that the Federal Reserve will continue to exercise oversight over the system, it will facilitate the quickest possible transfer of payments between individuals and even between providers of financial services.
In the overall banking and payment environment, there has been much criticism around the cost of settlements and the pace at which they are completed.
It was hoped that stablecoins and cryptocurrencies would alleviate this problem; however, regulators remain wary of these technologies despite their success.
Now that it has FedNow, the Federal Reserve can offer an efficient and reliable payment system that the government supports to anyone who needs it.
Official Speak
According to Ken Montgomery, first VP of the Federal Reserve Bank of Boston and FedNow program executive, “We could not be more enthusiastic about the upcoming FedNow unveiling, which will facilitate every partaking financial company, from the smallest to the biggest and from all parts of the nation, to offer a newer instant payment solution.”
“As the launch date draws closer, we strongly encourage financial institutions and the industry partners that they work with to make all the necessary preparation to join the FedNow Service,”
According to the release, following the certifications that will take place in April, the certified participants will then engage in production validation activities to make sure they are ready for the launch in July.
To eliminate the possibility of any kind of error occurring, the system must be operating at its full potential in terms of the payments and transaction systems, as well as every security element.
The FedNow Payment System and the Search for the Digital Dollar
The necessity for a digital dollar is currently being pushed to the sidelines by the leaders of the Fed due to the introduction of the FedNow payment system, which has taken its place.
Lael Brainard, Vice Chairman of the Federal Reserve, stated in front of the House Committee on Financial Services in May that the launch of the Digital Dollars will take significantly more time than the launch of the FedNow system due to the regulatory challenges that surround it.
She stated that
“[if] Congress were to decide… to issue a central bank digital currency, it may take five years to put in place the essential security features, as well as the design features.”
This view is also supported by Jerome Powell, the Chairman of the Federal Reserve, who emphasized that the majority of the work regarding the Digital Dollar is speculative for the time being.
He stated that at this point, “we’re not at the level of making any real decisions” and went on to explain that “what we’re doing is exploring in kind of early stage exploration. What would happen if we did this? Does it work? What is the most advanced piece of technology? Which method is the most productive?”
The leaders of the Fed have stated numerous times that the FedNow payment mechanism is adequate for the time being.