The Federal Reserve’s upcoming digital payment system, FedNow, will allow businesses and individuals to send and receive instant payments. The article also explores the potential implications and consequences of central bank digital currencies (CBDCs) on privacy, freedom, and the economy.
Envision a future where your cash has an expiration date and would vanish after a certain date if you do not spend it. This is already a reality with the introduction of the digital yuan, and Americans are understandably apprehensive of it.
An executive order has been issued by President Biden to investigate the possibility of the United States Central Bank developing a CBDC, which would effectively transform the dollar into a centralized digital currency.
The United States Federal Reserve just made an announcement that it is set to show us its new digital payment system in July of this year, and this is having a big rippling effect over the entirety of the internet because the CBDC is in the process of replacing the US currency.
Trust in the government
When it comes to the implementation of CBDCs, trust in the government is one of the most significant challenges. Because of this, most individuals choose to trade their goods and services for alternative forms of currency, such as cash or even cryptocurrencies. Nevertheless, the government has its own concept for a CBDC, and this will have enormous repercussions not only for ideals like freedom of privacy but also for cryptocurrencies like Bitcoin.
How does FedNow work?
The new payment system will make it simple for individuals and companies to send and receive quick payments around the clock, 365 days a year. Money transfers between banks will occur instantaneously and not take more than a few seconds.
If you are a business owner, your supplier could send you a request for payment, and you could fulfill it by making a payment through a partner bank. Your bank would submit an electronic form to the FedNow service in the back end, and after verification, the service would notify the supplier’s bank. Once the receiving bank verifies that it can accept the payment in real time, the FedNow service will debit and credit the appropriate accounts and notify both banks that the settlement is complete.
The Federal Reserve hopes that in the future, FedNow will replace services like Venmo and Apple Pay for personal payments between individuals. The service will roll out in stages beginning in July, and will initially be limited to residents of the United States.
CBDCs
In a CBDC, the government has complete authority over the circulation of its native currency. The money will be programmable, which will increase efficiency and (in theory) help keep the value of the dollar stable. It would push banks to compete with the Federal Reserve to make transfers and even ATMs considerably cheaper, modernizing the banking system in the process and making the transferring of money and government stimulus much faster.
Final thoughts
CBDCs will become permanent fixtures in our modern world. The potential for misuse of power by any administration is a worry for those who place a high value on personal autonomy and independence. Before centralized digital currencies become a reality, the pros and cons must be carefully weighed. The Fed’s new digital payment system is merely the beginning of the digitalization of money.