Federal Reserve confirms July launch for FedNow instant payment service

by Mar 16, 2023CryptoNews0 comments

The Federal Reserve in the United States is launching the FedNow service in July, enabling instant payments between financial institutions, merchants, and consumers without relying on blockchain technology. This move is significant because it is controlled by the Federal Reserve rather than a consortium of banks like the RTP network.

The FedNow service will provide round-the-clock, real-time gross settlement with built-in fraud risk management. The Federal Reserve plans to onboard as many financial institutions as possible after the launch to increase the availability of instant payments. Some see this service as an alternative to central bank digital currencies and stablecoins. Early adopters will complete a customer testing and certification program to prepare for live transactions through the system.

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FedNow Program

Tom Barkin, the President of the Federal Reserve Bank of Richmond and executive sponsor of the FedNow program, stated that the launch of the service is a significant milestone in meeting the needs of financial institutions and supporting various aspects of the economy with instant payments. Some believe that the FedNow service addresses a problem that stablecoins and central bank digital currencies aim to solve. However, unlike those technologies, FedNow does not use blockchain.

The Federal Reserve has a cautious stance on stablecoins. One of the major payment rails for US crypto companies, the Silvergate Exchange Network, was recently shut down following Silvergate’s collapse. While SigNet from Signature Bank, a competitor to SEN, is still operational despite the bank’s closure, it is uncertain what will happen to it, and some companies have reportedly left the network due to Signature Bank’s troubles.

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The FedNow service may serve as a replacement for a central bank digital currency (CBDC). Lael Brainard, the Vice Chair of the Federal Reserve, mentioned during a hearing in May that regulatory hurdles would cause a CBDC to take much longer to implement than FedNow. She also noted that FedNow would perform many of the same functions as a CBDC. Jerome Powell, the Fed Chair, spoke before the House Financial Services Committee in March and suggested that a potential CBDC for the United States was still far off. He stated that the Federal Reserve is currently in the early stages of experimenting with CBDCs and determining the best technology and efficiency. However, he was confident that real-time payments would soon be available through FedNow.

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