Federal Reserve Developing New Payments System: FedNow Service

FedNow Service

TL;DR: “Today I am excited to announce the Federal Reserve will invest in a new service to help ensure that real-time payments are available to everyone,” US Federal Reserve Governor Lael Brainard disclosed. “The Federal Reserve will develop the FedNow Service, a real-time payment and settlement service for the future.” 

FedNow Service

In prepared remarks to the Federal Reserve Bank of Kansas City Town Hall, Kansas City, Missouri, titled, Delivering Fast Payments for All, Governor Lael Brainard explained, “Everyone deserves the same ability to make and receive payments immediately and securely, and every bank deserves the same opportunity to offer that service to its community. FedNow will permit banks of every size in every community across the country to provide real-time payments to their customers.”

FedNow Service
The Money Museum at Federal Reserve Bank of Kansas City

Customers in the United States are all too familiar with the Fed’s Automated Clearing House (ACH) delays. It’s an electronic payment network for processing giant batches of debit and credit transactions and is a staple for direct deposits, government entitlement programs, tax refunds, and mortgage loans. Last year, over $50 trillion was processed by ACH.

Brainard, 57, was appointed by President Obama, and will continue to serve under the Trump Administration and beyond through January 31, 2026, where she is Chair of the Committees on Financial Stability, Federal Reserve Bank Affairs, Consumer and Community Affairs, and Payments, Clearing and Settlements. She is a Treasury insider and Washington, DC veteran, which has included previous stints at the Brookings Institution and as an economic advisor to President Clinton.

Crypto Appears to be Influencing Policy

Within cryptocurrency circles, she is best known for her Cryptocurrencies, Digital Currencies, and Distributed Ledger Technologies: What Are We Learning? speech summer of last year in San Francisco to the Decoding Digital Currency Conference. It was notable in squashing rumors of a so-called FedCoin, a presumed state-backed US cryptocurrency. She eventually concluded, “Finally, there is no compelling demonstrated need for a Fed-issued digital currency.” She went on to then dampen general fears about cryptos posing a threat to overall financial stability.

FedNow Service

“Today,” she mused in remarks about an improved Fed-generated payments system, “whether you are relying on ACH, a debit card, or a check, it can take as much as a few days to get access to your funds. With a Federal Reserve real-time retail payment infrastructure, the funds would be available immediately—to pay utility bills or split the rent with roommates, or for small business owners to pay their suppliers,” adding how “getting immediate access to funds from a sale in order to pay for supplies can be a game changer for small businesses, potentially avoiding the need for costly short-term financing.”

Significantly, she did mention Facebook Coin, Libra. She referred to it as “looking to establish a payment system that bypasses our banks and our currency. Facebook’s Libra project raises numerous concerns that will take time to assess and address. But one thing is clear: consumers and businesses across the country want and expect real-time payments, and the banks they trust should be able to provide this service securely—whatever their size.” The FedNow Service goal, she claimed, would be to “provide everyone with the ability to send and receive funds securely on a 24x7x365 basis,” with bankers needing “to embrace and invest in real-time innovations,” while “the Federal Reserve needs to provide a safe and efficient real-time interbank clearing and settlement service accessible to all banks.” Experts believe the rollout of such a system won’t be ready until 2024 at the earliest.

DISCLOSURE: The author holds cryptocurrency as part of his financial portfolio, including BCH. 

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