FedNow debuted just days after Ripple’s verdict. Amidst the speculations, questions emerged about its potential impact on cryptocurrencies
The U.S. Federal Reserve (Fed) officially launched FedNow, an instant payment system that allows U.S. citizens to send payments in seconds.
FedNow serves as an infrastructure that connects banks, facilitating instant payments between bank accounts and eliminating transactional delays associated with traditional systems. To ensure secure and efficient transactions, customers are restricted to making $500,000 per credit transaction.
However, during the initial phase, the transaction limit will be set at $100,000.
More Tricks From the Fed?
Under the Fed’s governance, the new service employs Metal Blockchain as the underlying technology. Metal Blockchain is a fork of Avalanche code with a subnet called X-Chain that enables the execution of smart contracts, adding flexibility and versatility to its services.
35 banks and 16 service providers have joined the initial launch of the Fed’s new payment service. Some prominent names are JPMorgan Chase, BNY Mellon, Wells Fargo Bank, and Peoples Bank.
Institutions participating in FedNow will experience quick money transfers and 24/7 access to the payment system, even on weekends when the traditional methods are closed.
Concerns arise among crypto members upon the launch of FedNow.
Many fear that it will undermine cryptocurrencies. However, experts assert that FedNowhas no association with cryptocurrencies or tokens. The system focuses solely on bolstering the speed and efficiency of domestic transactions through traditional financial channels.
With that fundamental, FedNOW is designed to expedite domestic transactions, offering real-time settlement capabilities. This feature sets the system apart from Ripple and stablecoins, centering on international settlement services.
FedNow is particularly revolutionary for households with fixed incomes or living on a monthly basis. It is set to eliminate extra fees and interest on loans, ensuring bills are promptly settled upon receiving paychecks. Small businesses also gain immediate access to debit card payments, managing costs efficiently and fostering growth.
Indeed, the launch of FedNow will impact intermediary services, where funds may take days to clear between banks.
Additionally, while FedNow offers a payment experience similar to cryptocurrencies, it lacks the fundamental features and characteristics of decentralization, censorship resistance, and independence from third-party control inherent in cryptocurrencies.
FedNow was first approved in August 2019 by the Fed Board of Directors. At that time, the system’s launch was scheduled for the next 5 years (2023) across the country. Following the announcement of this news, the price of Bitcoin experienced a slight decline, falling below the $29,700 level.
Time for a Fed-Based CBDC?
The arrival of FedNow has sparked confusing speculations about its association with Central Bank Digital Currency (CBDC). However, the Fed has firmly clarified that FedNow is not connected to CBDC in any way, and there are no upcoming plans regarding a CBDC.
In recent years, CBDCs have become a prominent topic globally, with many countries actively researching and developing their own digital currencies. Leading the race is China, which has been making significant strides with its CBDC, the digital yuan.
The digital yuan’s expansion is evident, with focused efforts on regions like Hong Kong and Macau. Furthermore, other popular destinations for Chinese tourists, such as South Korea’s Myeongdong District, have also expressed keen interest in accepting digital yuan payments.
In anticipation of increased cross-border spending, the Bank of China Hong Kong is strengthening its capability to redeem digital yuan. Some Hong Kong merchants are updating their debt collection systems to offer e-CNY payment services to travelers during the traditional peak tourist season in July and August.
For now, FedNOW stands as a groundbreaking initiative dedicated to improving domestic payment processes through Metal Blockchain technology. While FedNOW currently does not involve CBDCs, it remains open to potential integration in the future.