FedNow launch raises questions about CBDC, stablecoins

The Federal Reserve announced that its real-time payments service FedNow will launch in July. Anna Moneymaker—Getty Images

The Federal Reserve’s instant payments network is just months away from launch, raising questions about any attempt to create a digital dollar.

FedNow has been in the works since 2019 and will be released in July, according to a Wednesday announcement 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 does not process payments on weekends.

The service aims to create “a leading payments system that is resilient, adaptable and accessible,” Richmond Fed President Tom Barkin said in the statement.

But FedNow’s ability to facilitate real-time transactions and give customers instant access to funds has the potential to supersede the benefits of a blockchain-based digital US central bank currency.

Some have speculated that 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 nowhere near releasing a US CBDC. Still, referring to FedNow, he suggested at the time that “We will have real-time payments in this country very, very soon.”

Powell has suggested 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’s board, Michelle Bowman, said last year: “FedNow addresses the issues that some have raised about the need for a CBDC.”

As for the effect on the private crypto industry, some have questioned whether FedNow could affect stablecoin companies’ efforts 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 daily payments.

The largest US-based stablecoin company, Circle, the creator of USDC, was confronted with a difficult predicament over the weekend when $3.3 billion of the roughly $40 billion in reserves backing the stablecoin was captured in Silicon Valley Bank.

After several days of the coin trading below the dollar peg, the Fed stepped in to stop all deposits and the USDC regained parity with the dollar.

Circle did not immediately respond to a request for comment.