The US Federal Reserve recently unveiled its FedNow Service system to facilitate prompt payment; However, experts have warned that the system could be a precursor to central bank digital currency (CBDC) infrastructure.
The FedNow service, launched on Thursday, July 20, aims to increase the movement of money in the US economy by providing various benefits to consumers and businesses. It will enable instant access to paychecks, facilitate last-minute bill payments and expedite government payments to individuals.
“The Federal Reserve built the FedNow service to help make everyday payments faster and more convenient for years to come,” said Jerome H. Powell, President of the Federal Reserve.
“Over time, as more banks choose to use this new tool, the benefits to individuals and businesses will include enabling an individual to receive a pay check immediately or a company to receive funds immediately when an invoice is paid.”
While this may seem like a positive step, it is in line with an important goal of the digital asset industry – enabling fast and accessible money transfers at any time.
Crypto enthusiasts believe this is another way for the government to create a structure for a government-issued CBDC.
“This is a payment system, not a digital token or a CBDC, but something that can be used to facilitate the creation of a CBDC,” said Jim Bianco, president of Bianco Research.
However, the Fed denied the notion that FedNow is linked to the underlying intent in its July 10 FAQ.
CBDC exploration and concerns surrounding FedNow in the United States
Although the United States has yet to adopt any central bank digital currency (CBDC), various initiatives have been explored, including the New York Federal Reserve’s 12-week program to test a simulated digital dollar to gauge government interest in digital currency.
While Federal Reserve officials like Fed Chairman Jerome Powell and Fed Governor Michelle Bowman have been cautious about digital dollars, or CBDCs, it is worth noting that Fed officials are actively studying the potential of a government-issued digital currency.
Fed Chairman Jerome Powell himself has repeatedly expressed support for exploring the idea.
While many cryptocurrency experts speculate that creating a CBDC may be the underlying motive behind FedNow, concerns have been raised about government control over digital tokens, which could lead to censorship and permission to specific transactions or individuals.
Dave Weisberger, CEO and co-founder of Coinroots, said, “If FedNow does indeed become a programmable CBDC, it could theoretically be used to block payments for items the government doesn’t like or to lock people out of the financial system who are perceived in some way as a threat to ruling authorities, aka, political opponents.”
Some banks have also expressed skepticism about the FedNow system, criticizing its leadership structure and lack of a clear business plan, as it is financed with taxpayer money.
Furthermore, an unlikely alliance has emerged between traditional banks and blockchain enthusiasts, both of whom have expressed skepticism towards FedNow.
“The problem, of course, is that the government is going to have to put some measures on digital tokens, and they are going to be able to allow them for certain types of people in certain types of ways or for certain types of transactions and censor them,” Bianco said.
The launch of FedNow has sparked debate, with some viewing it as a potential step towards an eventual central bank digital currency and cashless society, raising concerns about government access to every transaction and the potential for authoritarianism and abuse.