Will FedNow’s July Launch Make Crypto Redundant?
Digital is often a one-way street, and the financial sector seems to be taking it.
This is as the future of money movement appears to be reaching a crescendo this July when the Federal Reserve launches its long-awaited payment service, the FedNow Service.
Once FedNow goes live, there’s no going back. Insiders on the government project, i.a Dan Baumsaid senior vice president and head of FedNow’s payments product PYMNTS last fall that the platform represents “the beginning of the reality of truly modern payments in the United States”
What that means for the other alternative-fiat assets riding the digitization wave, including offerings like stablecoins and a potential US central bank digital currency (CBDC), remains to be seen.
A recently published White House financial report believes that despite capitalizing on the emerging environment, digital assets, especially crypto, have failed to deliver any real value other than bringing key user demands to the forefront of the future of payments and digital money.
“The growth of cryptoassets has revealed a demand for a faster and more inclusive financial system with a real-time payment system and circulating digital money… This vision has not been realized [by crypto]”, the White House says, stressing that “the benefits of circulating digital money after FedNow is launched may be minimal.”
Removal of digital cash balances from FedNow’s upcoming On-Ramp
Observers have questioned whether recently actions and reports of US government agenciessuch as the Securities and Exchange Commission (SEC), aimed at crypto is intended to act as a spring cleaning for the digital payments landscape before the launch of FedNow this summer.
FedNow will allow businesses and individual customers of participating banks to send and receive payments 24/7, providing a valuable and convenient alternative to the existing system, which traditionally processes payments during business hours and never on weekends.
The FedNow service is designed to create “a leading payments system that is resilient, adaptable and accessible … around the clock, every day of the year,” Richmond Fed President Tom Barkin said in a statement.
The ability of the FedNow payment service to facilitate real-time transactions and provide immediate access to funds echoes many of the benefits that both cryptocurrency proponents and CBDC supporters espouse about alternative digital assets.
And it can be entirely by design.
read more: US Treasury says CBDC is good for consumers, bad for banks
Last summer, Fed Governor Michelle Bowman said in a statement that “FedNow addresses the issues that some have raised about the need for a CBDC.”
Just last month (March 8), while Federal Reserve Chairman Jerome Powell told the House Financial Services Committee that “we will have real-time payments in this country very, very soon,” referring to FedNow, he added that it remains unclear whether a US CBDC digital dollar is something that “the financial system and American citizens want or need.”
CBDCs are technically stable coins, only they are government backed and sovereign issued rather than privately minted and distributed.
In a speech last week (March 30) at Business Economics National Association annual conference, US Treasury Secretary Janet Yellen emphasized the risks of private issuance stable coins.
“We have recommended that Congress pass legislation to establish a comprehensive regulatory framework for stablecoin issuers,” she said. “Such a framework would include consolidated federal oversight, requirements for how a coin can be backed, capital and liquidity requirements, and restrictions on affiliation with commercial corporations.”
As reported of PYMNTS Yellen’s fears about stablecoin digital assets stem from the fact that they have a structure that creates the types of “run incentives” found in the traditional financial system.
Despite the technical similarities between the two assets, privately held stablecoin providers are also coming out against government CBDCs.
Circle Chief Jeremy Allaire said in an interview last month that it is unwise to “depend on government to build technology and innovate.” He emphasized that the future of digital money should instead rely on “the open source development that has given birth to the entire internet”.
In the past decade, payments in cash and checks have declined dramatically, while digital payments have increased markedly—as has federal scrutiny surrounding them.
Governments play a fundamental role in providing financial stability, as this scrutiny informs regulation, which in turn influences consumer choices and behaviour. It remains to be seen what the next decade will bring for the future of the digital money movement and the businesses that support and rely on it.
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