The U.S. central bank released an update on the Federal Reserve’s Fednow project, scheduled to launch in July.The Fed responded to recent criticism of its Fednow service by announcing that the Fednow Payment Network, asserting that it is “neither a form of currency nor a step toward the elimination of all forms of payment, including cash.”
Fednow will not replace cash, U.S. central bank insists
When the Federal Reserve announced the launch of Fednow in July, opposition quickly erupted, leading many to believe that it was one of the early stages of a central bank digital currency (CBDC) in the United States. Several prominent economists and politicians warned that CBDC would lead to increased scrutiny of Americans’ financial transactions.
To quell fears, the Fedissued an updateon April 7, 2023, which included “Will Fednow Replace Cash?” and “Is it a central bank digital currency?” The question was posed. The central bank insists that Fednow achieves neither of these objectives and emphasizes that the project is focused solely on “immediate payments. “The Fed’s update clearly states: “Fednow has nothing to do with a digital currency.” The U.S. central bank’s notice adds:
Fednow is a payment service that the Federal Reserve makes available to banks and credit unions for the transfer of funds. It is the same as other Federal Reserve payment services such as Fedwire and [Fed ACH]; the Fednow service is neither a form of currency nor a step toward eliminating all forms of payment, including cash.
In a recent interview, economist Richard Werner expressed concern about the timing of the Fednow project, describing it as “questionable. “Werner linked the concept to central bank digital currency (CBDC) and criticized Fednow on 5 Georgia Congresswoman Marjorie Taylor Greene shared this sentiment. In recent days, several U.S. lawmakers have introduced bills to ban the CBDC concept.
According to a Fed update, the central bank “has not decided whether to issue a central bank digital currency (CBDC)” and will not do so without the approval of the executive branch and members of Congress The Fed further emphasized that “CBDCs are not intended to replace cash or other means of payment It emphasizes that it “is not a replacement for cash or other means of payment.
Conversely, the White House’s recent “Economic Report of the President” notes that the Fednow and CBDC initiatives “could deliver many of the benefits promised by crypto asset developers.” With regard to CBDC in the United States, the public is currently aware of two different Federal Reserve Bank projects.
The first project is an experiment called Project Cedar, designed by the Federal Reserve Bank of New York. Project Cedar’s protocols employ wholesale digital dollars to enhance financial transactions The second CBDC initiative by the Fed is “Project Hamilton,” a collaboration between the Federal Reserve Bank of Boston and the Massachusetts Institute of Technology (MIT) The Fed is Fednow claims that it has nothing to do with digital currencies, but that seems to be a matter of semantics.
The Fed claims that the Fednow service is neither a digital currency nor a step toward eliminating all forms of payment, including cash, but instead a digital payment system designed to facilitate immediate payments. However, some critics argue that this system is actually a type of digital currency and that the Fed’s characterization of this project is misleading. After all, the exact nature of the Fednow service and its relationship to potential CBDCs remains a subject of debate.
Will the Fednow project pave the way for a central bank digital currency, or is it simply a digital payment system designed to facilitate instant payments? Let us know your thoughts in the comments section below.
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