The Federal Reserve’s instant payments network is just months away from launching, which is raising questions over any efforts to create a digital dollar.
FedNow has been in the works since 2019 and will be released in July, according to a Wednesday statement from the central bank. FedNow will allow businesses and individual customers of participating banks to send and receive payments 24/7—an alternative to the existing system that doesn’t process payments on the weekends.
The service aims to create “a leading-edge payments system that is resilient, adaptive, and accessible," Richmond Fed President Tom Barkin said in the statement.
But FedNow’s ability to facilitate real-time transactions and give customers immediate access to funds has the potential to supplant the benefits of a blockchain-based U.S. central bank digital currency.
Some have speculated this is part of the point.
Speaking before the House Financial Services Committee earlier this month, Fed Chairman Jerome Powell said the central bank was not close to releasing a U.S. CBDC. Still, referring to FedNow, he hinted at the time that “We’ll have real-time payments in this country very, very soon.”
Powell has implied that stablecoins could fit into the traditional banking system, but reiterated that more regulations and safeguards were needed for digital assets.
Another member of the Fed Board of Governors, Michelle Bowman, said last year, “FedNow addresses the issues that some have raised about the need for a CBDC.”
As for its effect on the private crypto industry, some have questioned whether FedNow could affect the efforts by stablecoin companies to reach more Americans. While stablecoins will continue to appeal to crypto natives, it may be harder to convince others to make the leap for everyday payments.
The biggest U.S.-based stablecoin company, Circle, the creator of USDC, was confronted with a difficult predicament over the weekend as $3.3 billion of the around $40 billion in reserves backing its stablecoin were caught up in Silicon Valley Bank.
After several days of the coin trading below its dollar peg, the Fed jumped in to backstop all deposits and USDC regained parity with the dollar.
Circle did not immediately respond to a request for comment.
