According to reports, the Federal Reserve has announced the creation of a system that would give consumers and businesses the opportunity to send and receive funds instantly. This solution will also allow U.S. banks to quickly complete debits, checks and virtual transfers.
The Federal Reserve’s New Project is Called “FedNow”
The Federal Reserve recently announced that it will build a real-time payment solution called “FedNow.” The goal is to help users move money more quickly. The new project is expected to be operational in either 2023 or 2024. The same type of government service firms and consumers have reportedly been requesting for many years as it exists in many other countries.
The service is set to compete with the solutions developed by big banks and tech corporations in the private sector. Via a statement, the Fed said they want public opinion on their new project. The project could help both businesses and private users.
Vice-Chairman for Supervision at the Federal Reserve Voted Against the Project
Randal Quarles, who serves as the Fed’s vice chairman for supervision, reportedly voted against the decision despite the fact that smaller banks praised it. Off course they can’t be blamed because it will allow them to access real-time payments without paying larger competitors for the same service.
Larger banks, on the other hand, have already built their private infrastructure, hence they are critical of the Federal Reserve potentially operating side by side with them. According to a previous report from the Wall Street Journal’s editorial board, the Fed isn’t meeting that standard. They fear the redundancy between the state and Federal Reserve “would increase the cost of directly and indirectly using the system.”
However, it appears they have changed their mind. They are of the view that having competing systems could lower prices instead and improve the quality of service as well as innovation.
The Federal Reserve currently completes payments by settling the debts between banks fully and in daily quantities, which withholds a recipients’ access to money. There is an important independent support for a national system that eliminates payment processing delays, late fees and the costs of overdraft for consumers.
The Project Could Help Small Businesses Cover Expenses
Allowing real-time payments could help small businesses that have tight margins cover expenses immediately due to quick access to funds via debit card payments, which would have otherwise taken a number of days to clear. The crypto community isn’t really thrilled with the Fed’s latest initiative. Proponents of Bitcoin and other cryptocurrencies believe that it is a long shot since cryptocurrencies already serve this purpose. Anthony Pompliano, co-founder of Morgan Creek Digital Assets expressed his displeasure in a tweet responding to the news on CNBC. Other people applauded the scheme but recommended Bitcoin as the medium to be used.
However, there are a few who have faith in the project. Ripple Labs is one of the few. Back in June Ripple was elected to the Fed’s Faster Payments Task Force Steering Committee. The goal of the initiative is to build a “faster, safer and ubiquitous transactions network in the United States.”
The task force has over 300 participants from multiple segments including financial institutions, trade groups, technology providers, end-users, businesses, governments and payment networks, to name a few.