The United States Federal Reserve has confirmed the July launch date for its long-awaited instant payment system, seen by some as an alternative to central bank digital currencies (CBDCs) and stablecoins.
The instant payment network will complete payments in seconds and can support transactions between consumers, merchants and banks. It does not rely on blockchain technology.
It is a significant step for the government as it is controlled by the Federal Reserve Bank, as opposed to the RTP Clearing House network which is operated by a consortium of large banks.
@federalreserve @ service frb announced the July launch of the FedNow Service: https://t.co/a7kPqxkS7Q
– Federal Reserve (@federalreserve) March 15, 2023
According to the March 15 announcement, the US Fed said that FedNow’s debut is set for July with the US Treasury and that a “diverse mix of financial institutions of all sizes” is ready to use the network from launch.
The Fed said it would “begin formal certification of participants” during the first week of April in preparation for the launch.
“Early users will complete a customer testing and certification program, informed by feedback from the FedNow Pilot Program, in preparation for sending transactions directly through the system,” the announcement read.
FedNow was announced in 2019 and will provide real-time gross settlement by transferring commercial bank funds from senders through Fed credit accounts to recipients. It also has built in features such as fraud risk management.
If you like bank runs in the age of social media, you’ll like bank runs in the age of fednow
— nic carter (@nic__carter) March 12, 2023
After the official launch, the Federal Reserve confirmed that it will push many financial institutions to increase the availability of instant payments.
“This launch represents an important milestone in our journey to help financial institutions meet our customers’ needs for fast payments to support nearly every aspect of our economy,” said Tom Barkin, president of the Federal Reserve Bank of Richmond and executive sponsor of the FedNow Program, as part of the announcement. .
Some see the FedNow service as solving a problem that stablecoins and CBDCs also face.
But the FedNow program does not use blockchain technology, while the Federal Reserve is known to be cautious and skeptical about stablecoins.
One of the main banking payment rails serving US crypto companies in the Silvergate Exchange Network (SEN) was shut down earlier this month following the collapse of Silvergate.
As it stands, the competitor SEN SigNet from Signature Bank is still operational even though the bank was closed on March 13, however, its fate is up in the air, while several companies have reportedly fled the network after Signature’s problems.
Exactly.
Silverbank owns the Silvergate Exchange Network.
Signature is Signet.Both are private networks for companies to transfer value between each other using digital assets. Where are the two now?
The company is enabling alternative currencies that threaten CBDC and FedNow.
– Damon Nam (@damonnam) March 15, 2023
FedNow can also replace digital currencies issued by central banks.
Federal Reserve Vice Chairman Lael Brainard confirmed during a House of Representatives Committee on Financial Services hearing in May 2022 that CBDC will take longer than FedNow due to regulatory hurdles.
“[if] Congress is going to decide … to issue a central bank digital currency, it could take five years to provide the necessary security features, design features,” he said.
He added that FedNow will serve many of the same functions as a CBDC.
Related: Tassat blockchain to integrate FedNow service with B2B on-ramp as pilot prepares for launch
Fed Chairman Jerome Powell also spoke before the House Financial Services Committee on March 9 and suggested that a potential US CBDC is still a long time coming.
“We’re not at a real decision-making stage,” he said, adding “what we’re doing is an experiment in an early-stage experiment. How does this work? Does it work? What’s the best technology? What’s the most efficient?”
Commenting on FedNow, however, he said that “we will have real-time payments in this country, very soon.”