The Fed Launches New FedNow Instant Payment Service: Does This Undermine Crypto Use Case?
The US Federal Reserve announced Thursday that its long-awaited FedNow service has gone live.
According to a Fed publication website“Banks and credit unions of all sizes can sign up and use this tool to instantly transfer money for their customers, any time of the day, any day of the year.”
According to the Fed announcement, the FedNow service starts with 35 users.
These include what the Federal Reserve refers to as “early adopter” banks and credit unions and the US Treasury Department’s Office of the Fiscal Service.
Another 16 service providers are also ready to support payment processing for the service.
Does FedNow Undermine the Crypto Use Case?
One of the key touted use cases of cryptocurrencies is that they offer a means of 24/7 instant payments between individuals.
Prior to the launch of the Fed’s FedNow service, transferring funds in the US had been cumbersome.
Many existing clearinghouse systems only offer same-day service, while cashing a check can face delays of days or even weeks.
But now that the Federal Reserve has launched a 24/7 instant payment service, some worry that the use case for cryptocurrencies has weakened.
Of course, 24/7 instant payments are just one part of the main touted use case for cryptocurrencies.
Arguably the most important use case is the decentralization of cryptocurrencies, or at least the decentralization of cryptocurrencies like Bitcoin, Litecoin, and the Ethereum blockchain.
Decentralization means that the system does not have a single point of failure, and no individual or entity can censor the network for their own benefit or to the detriment of others they do not like.
That remains in stark contrast to the centralized world of traditional finance, where bank accounts and transactions, including through the Fed’s new FedNow service, remain subject to censorship and arbitrary closure.
Blockchains are also completely transparent by design, something that is completely lacking in the traditional financial sector.
A step towards a central bank digital currency?
Critics of the FedNow service claim it is a step towards a centrally controlled Fed digital currency, or Central Bank Digital Currency (CBDC).
Many cryptocurrency and freedom advocates shudder at the idea of a centrally controlled digital currency, which the government could theoretically use to control nearly every aspect of its citizens’ lives in pursuit of its political goals.
“We are absolutely one step closer to a CBDC,” crypto-influencer and Bitcoin maximalist Layah Heilpern said on Twitter.
“Centrally controlled CBDC is coming,” Joni Job said.
But the Fed wanted to emphasize that the FedNow service is not related to a digital currency.
“The FedNow service is not related to a digital currency,” the Fed said.
“The FedNow Service is not a form of currency or a step toward eliminating any form of payment, including cash.”
But the US Treasury is looking into a CBDC, and Treasury Secretary Janet Yellen said it’s worth considering in the past.
However, Congress could end up preventing it from happening.
US lawmakers on both sides of the aisle introduced a bill in May to block the Federal Reserve from issuing a central bank digital currency.