The US Central Bank has issued an update on the Federal Reserve’s Fednow project, which is scheduled to start in July. The Fed has responded to recent criticism of the Fednow service, stating that the Fednow payment network “is not a form of currency or a step toward eliminating all forms of payment, including cash.”
Fednow Won’t Replace Cash, US Central Bank Insists
When the US Federal Reserve announced the launch of the Fednow service in July, it sparked immediate opposition and led many to believe that it is one of the early stages of a US central bank digital currency (CBDC). Several leading economists and politicians have warned that a CBDC would lead to increased surveillance of the financial transactions of Americans.
To calm fears, the Fed issued an update on April 7, 2023, in which he posed the questions: “Is Fednow replacing cash?” and “Is it a central bank digital currency?” The central bank maintains that Fednow does not achieve any of these objectives and emphasizes that the project is focused solely on “instant payments”. The Fed update states unequivocally: “Fednow is not related to a digital currency.” The US central bank notice adds:
Fednow is a payments service that the Federal Reserve is making available to banks and credit unions to transfer funds. It’s like other Federal Reserve payment services such as Fedwire and (Fed ACH). The Fednow Service is not a form of currency or a step toward the elimination of any form of payment, including cash.
In a recent interview, economist Richard Werner expressed concern about the timing of the Fednow project, describing it as “suspicious.” Werner linked the initiative to a central bank digital currency (CBDC), a sentiment shared by Georgia Rep. Marjorie Taylor Greene, who criticized Fednow on April 5. In recent times, several US legislators have proposed legislation that would ban CBDC initiatives.
According to the Fed’s update, the central bank “has not made a decision on whether to issue a central bank digital currency (CBDC),” and will not do so without authorization from the executive branch and members of Congress. The Fed further emphasizes that “a CBDC would not replace cash or other payment options.”
In contrast, the recent White House “President’s Economic Report” pointed to the possibility that initiatives by Fednow and CBDC “have the potential to realize many of the benefits that crypto asset developers have promised.” With respect to a US CBDC, the general public is currently aware of two separate projects from the Federal Reserve.
The first project is an experiment called “Project Cedar,” a pilot designed by the Federal Reserve Bank of New York. The Project Cedar protocol employs a wholesale digital dollar to enhance financial transactions. The Fed’s second CBDC initiative is the “Hamilton Project,” a joint effort of the Federal Reserve Bank of Boston and the Massachusetts Institute of Technology (MIT). While the Fed maintains that Fednow is not related to a digital currency, it appears to be a matter of semantics.
The Fed claims that the Fednow service is not a digital currency or a step toward eliminating all forms of payment, including cash, but rather a digital payment system designed to facilitate instant payments. However, some critics argue that the system is, in fact, a form of digital currency, and that the Federal Reserve’s characterization of the project is misleading. Ultimately, the exact nature of the Fednow service and its relationship to a potential CBDC remains a matter 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? Share your thoughts in the comments section below.
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