FedNow Goes Live - DNA for Future CBDC Locked In
Is more government in personal finances what Americans Want?
Americans love ease and the government is here to help.
According to Federal Reserve Chair Jerome H. Powell, the new FedNow system, effective July 20, promises to “help make everyday payments over the coming years faster and more convenient.” The service will “yield economic benefits for individuals and businesses.”
Rather than wait for financial transactions to process, FedNow replaces real time payments (RTP) through clearing houses with instant payments via the federal government.
For example, traditionally, when you pay your utility bill your money is transferred from your bank account, through a clearing house which notifies the receiving institution and passes the payment to them. This process may take a day or two. FedNow becomes a digital clearing house instantly transferring the money any time of the night or day, 365 days a year.
Initially, 35 financial institutions have been certified to participate in the payment and transfer service. These are currently live on the service:
While FedNow is not central bank digital currency (CBDC) it does establish a critical gateway system through which your money must pass to reach its destination. If you send a payment to your utility company using a participating institution, the government enables, transfers, and records every transaction.
Secretary Janet Yellen assured Americans, “The FedNow Service is neither a form of currency nor a step toward eliminating any form of payment, including cash.” She also promoted CBDC transition saying the U.S. should be “in a position where we could issue one.”
The Federal Reserve insists the Service is not related to a digital currency and Yahoo write the concerns off as speculation, “especially among Republicans.”
AP Fact Checkers echoed that FedNow is not a form of cash nor a movement towards eliminating cash. (They know, they asked the Federal Reserve. See above references.)
What if the government did decide not to fully enable and transfer your payment? (That scenario is not likely to happen under FedNow. There are competitors and restrictions on what can done as a “clearing house”.)
But, when CBDC comes into effect in the United States, as it is in many nations, new rules and procedures will apply.
Think of CBDC as a ‘hall pass’ your teacher gives you. The restrictions on your pass can be as generous or restricted as the teacher allows.
The digital currency, which could be easily accessed through facial recognition, implanted chips, cards, etc., becomes the gateway for access to using your money. The keeper of that gateway, the federal government, would have the ability to place restrictions on purchases of items in short supply, those deemed unsafe, or whatever else served the national interest. They could make access to portions of your assets dependent on vaccine status. Universal incomes could be quickly deposited in your accounts, as well as negative interest withdrawn.
As the ad says, “The possibilities are endless.”
Many financial institutions are slow to adopt FedNow. U.S. Bank is certified, but also feels customers still want choices. They have already implemented RTP and intelligent routing. As Anu Somani, their head of Global Payables & Embedded Payments said, “Clients can come to us for a one-stop bank and we can connect to any instant payment rail that meets their business goals.”
Others believe “why fix what isn’t broke?”
With the government pushing FedNow, it is only a matter of time until most, or all of America’s 9000 financial institutions sign up.
Until then, if government acting as the clearing house for your financial transactions is troubling, call your banker and voice your concerns. That may slow it down long enough for more people to get fully informed and decide if the government is the best trusted steward with their money.