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What Is FedNow, And Should You Be Concerned?
FedNow is not a CBDC, but it represents an unprecedented level of centralization and oversight of the payments system.
Early in July, likely within the next week, the Federal Reserve is going to roll out a new service: FedNow.
FedNow is the central bank's new fast payments system. Sending money between US banks is currently slow, expensive, and barely fit for purpose for the 21st century. Payments in the US rely on legacy systems that can involve delays, batch processing, and limited availability. The FedNow service will allow participating banks and financial institutions to send and receive payments 24/7/365, including weekends and holidays. Funds will be cleared in real time, at any time of day or night.
What FedNow Is And Is Not
FedNow is an upgrade to the existing financial infrastructure that will change the way people send and receive money. It is not a new currency or a CBDC. Think of it like financial plumbing: It allows existing money to flow more quickly and cheaply.
That's great for people who just want to make and receive payments easily. But FedNow has the potential to be a whole lot more than just an upgraded payments system—and the implications are not good.
Here's the Fed's own explainer video (spoiler: It's slickly produced but not exactly riveting):
It's also light on some of the implications. In this short video, Guy from Coin Bureau gives a view from the crypto world about what FedNow is, and why some people are concerned about it.
Worries About FedNow
In its first iteration, FedNow is simply an upgraded and efficient payments system. However, by its very nature it centralizes power with the Federal Reserve, giving the Fed a significant degree of control over the payments system.
While the existing payments network is slow, inefficient, and fragmented, this also means there is also a degree of decentralization and a lack of overall oversight by any one party. That's about to change.
The Fed will have visibility over all payments made using FedNow, reducing citizens' financial privacy. In the future, there is concern they may build additional tools that will increase the scope for surveillance and, ultimately, control. Individual users and payments for certain goods and services could be watched and blocked, and there will be few if any viable alternatives for people to move money around easily.
FedNow is not a CBDC, but it does allow some of the same functionality, and is a possible precursor to a central bank digital currency. The fear is that it will take us another step down the path to a dystopian society in which money is used as a means of population control, rather than merely as a store of value, unit of account, and medium of transfer.
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