Yesterday, the US Federal Reserve announced the launch of FedNow, a new system for instant payments, choosing JPMorgan, BNY Melon and Wells Fargo as the first users of the service.
FedNow will solve the problem of instant liquidity worldwide, with many benefits for financial institutions.
Is this a step toward the adoption of CBDCs and a danger signal for the cryptocurrency industry?
We see it together in this article.
Fed launches FedNow instant payments system: JPMorgan among first guinea pigs in the experiment
The US Federal Reserve announced in a press release yesterday that it has launched FedNow, a new instant payments system, selecting private institution JPMorgan Chase and 34 other banks as early adopters of the project.
Initially, this new paradigm in the world of payments will be explored primarily in the context of credit unions and banking institutions, eventually reaching out to all US citizens.
The US Treasury Department’s Fiscal Service Office will also be a participant in this experiment, as well as 16 ready service providers supporting the processing of money flows
The service will improve cash efficiency for financial institutions, businesses and individuals with the ability to access funds at the same time a payment is made or a bill is settled.
Benefits include optimal management of a company’s cash flow, with employees being able to receive their salaries instantly and use them immediately thereafter, without having to wait the canonical 2-3 business days for wire transfers to be processed.
In the near future, customers of banks such as JPMorgan Chase (generally all those that join the service) will be able to take advantage of FedNow payments through their mobile application interface via a simplified user experience.
As the US Central Bank’s announcement indicates, the system will be open 24/7 and 365 days a year including holidays: in short, a service that is close to the idea of cryptocurrencies that relies on a technology that never sleeps, namely the blockchain.
This is a big step toward the idea of dynamic credit, in a current context where the banking system takes hours or even days before making money available to a given entity.
On the news, Jerome H. Powell said:
“The Federal Reserve built the FedNow Service to help make everyday payments over the coming years faster and more convenient. Over time, as more banks choose to use this new tool, the benefits to individuals and businesses will include enabling a person to immediately receive a paycheck, or a company to instantly access funds when an invoice is paid.”
JPMorgan and the FedNow payments service, a step toward adoption of CBDCs?
The new FedNow fast payments system, initially adopted by banks and lenders such as JPMorgan Chase, BNY Mellon, and Wells Fargo, could represent the beginning of a new era in which so-called “Central Bank Digital Currency” (CBDCs) are leading the revolution.
Indeed, the experiment launched yesterday by the US central bank would hint at a forthcoming introduction of these virtual currencies within traditional financial services, being inescapably linked to the fiat currency system.
In any case, US Treasury official Janet Yellen clarified that “The FedNow service is not related to a digital currency.“
She further explained that FedNow does not represent a new form of currency and that its launch is not intended to replace any form of payment, including cash, but rather is intended to coexist as an innovative form of instant payments.
It is simply a convenient service that the Fed is making available to banks and financial institutions to enable optimal management of their assets, with the goal of expanding horizons to all US citizens.
As an interbank payment system, FedNow will operate alongside other legacy services such as FedWire and FedACH, leveraging collaboration with the estimated 9,000 banks and credit unions that will join the group.
The ability to perform instant money transfers is crucial for the United States, which will no longer have to depend on alternatives belonging to the private sector such as Diem, the currency belonging to Facebook’s Meta project (now abandoned).
While several people are buzzing about the introduction of FedNow, some users on Twitter point out that this kind of system has already been in place in many jurisdictions around the world for several years.
Others are resistant to FedNow, believing that this new experiment will open the door to a world totally controlled by banks, in which access to funds for citizens will be managed through biometric data and “social credit” mechanisms will be introduced
Attack on cryptocurrencies or the beginning of an integration to the blockchain world?
Following the announcement of the introduction of the FedNow instant payments service and experimentation by financial giants such as JPMorgan Chase and Wells Fargo, the crypto community has felt called out for a veiled attack on the industry.
In fact, conceptually, a system that allows rapid payments without relying on the traditional monetary system clearly reflects what has been the ultimate goal of the development of decentralized currencies such as Bitcoin.
Indeed, the cryptocurrency era has opened the door to fast and inexpensive money transfers, with infrastructure open any day or time of the year.
At first glance FedNow seems to be trying to replace the presence of cryptocurrencies, though it implies some flaws that cannot go unnoticed.
The fact that there is an efficient payment circuit, does not detract from the fact that the currency itself is efficient, at a time in history when inflation and interest rates are putting a strain on investors and savers.
The essence of cryptocurrencies rises to a higher status than that of the mere FedNow system, with at its core the idea of a decentralized monetary system untethered from the power of banks.
This is mainly the point that makes cryptocurrencies absolutely most disruptive and decisive in the development of a new economic-financial system.
Hence, no fear for crypto maximalists because for now nothing can replace this technology.
Truth be told, it is not certain then that the FED wanted to throw a dig at the crypto industry, but simply to introduce a new service that can act as a gateway in the future with blockchain-based cryptocurrencies.
Indeed, among the list of services that latch on to FedNow, we can find the presence of Metal Blockchain, a network developed on a fork of the Avalanche code, which allows developers to create digital tokens with certain rules regarding transfer, based on the needs of financial institutions.
Since Ripple’s concept is based on efficient monetary transactions within the world of financial institutions, the project could be associated with this system in the future.