The Federal Reserve plans to launch its live transactions service, FedNow, in July. The Fed addressed some frequently asked questions about the new system on Twitter and said FedNow is not a central bank digital currency (CBDC), which many other countries are developing and several have launched, including China.
The Fed said FedNow is not a form of currency and is not intended to replace cash. Instead, FedNow is a “payments service the Federal Reserve is making available for banks and credit unions to transfer funds,” according to an April 27 Twitter post.
According another tweet by The Fed, FedNow will allow individuals and businesses to send and receive payments instantly “within seconds at any time of the day, on any day of the year, so that the receiver of a payment can use the funds almost instantly.”
The Fed states on its website that it is weighing the potential benefits and risks of a CBDC and has not decided whether to move forward with developing one. Fed Chair Jerome Powell said during a House Financial Services Committee in March that a CBDC is “something we would certainly need Congressional approval for.”
As of March 1, the central banks of more than 20 countries have launched the pilot of a CBDC, and 65 countries are in an advanced stage of the development process, according to the Atlantic Council.
CBDCs are similar to stablecoins, except instead of being privately issued, they are issued by a reserve bank or monetary authority that oversees a country’s currency and commercial banking system, according to McKinsey. Some CBDC development is part of an effort to give more citizens access to central bank money, while some is the result of concerns about what impact private stablecoins could have on traditional monetary policy. McKinsey predicted that the evolution of private stablecoins and CBDC will shape the future of commerce.
Although China and Russia have banned the use of cryptocurrencies, the leadership of both countries recognizes that digital currency will play a critical role in the future of the global economy. Both countries have developed CBDCs, which are pegged 1:1 to their fiat counterparts, according to Georgia Quinn, general counsel for Anchorage Digital. Quinn recommended that the U.S. cement stablecoin regulations and that American stablecoin issuers voluntarily participate in regulation and supervision. These steps will enable the U.S. stablecoin market to continue to drive innovation and economic activity. The U.S. dollar serving as the main fiat currency tied to stablecoins worldwide will support American national stability by “further bolster[ing] U.S. dollar prominence over other potential competitors in the global digital asset ecosystem over the long term.”
In an episode of the podcast “Unchained,” Miller Whitehouse-Levine, policy director of the DeFi Education Fund, said governments should be aware that they do not necessarily need to adopt another country’s digital currency for its businesses to start using it.
“For example, China could predicate market access on foreign businesses using the ERB to do business and to take their assets out of the country. And I think, you know, given the evidence of the U.S. businesses’ approach to China, that wouldn’t be a terribly high cost in the minds of many business leaders,” Whitehouse-Levine said.
