The U.S. Federal Reserve disputes any connection between its brand-new fast payments program, FedNow, and the world of digital assets.However, according to analysts, the new mechanism might create the foundation for a prospective central bank digital currency (CBDC) in the United States.The revelation this week has therefore given rise to new cautions about the privacy and control problems associated with a digital dollar.The service, which replaces the current method of transmitting money from account to account, which normally takes a few hours or days, was officially launched by the Fed on Thursday.
Because the FedNow project adopts a crucial objective of the digital asset sector—moving money around freely and rapidly, at any time of day or week, even when banks are closed—some cryptocurrency fans regarded the announcement as a sign of approval.Every day of the week, FedNow will be open.
“This is a payment system, not a digital token or a CBDC, but it is something that can be used to facilitate the creation of a CBDC,” said Jim Bianco, president of Bianco Research.
But some of the same worries that are looming over CBDC growth might also apply to the FedNow.Republican politicians and political figures in particular have voiced fears that a CBDC may be subject to government surveillance or that the government may be able to restrict transactions.For instance, Republican presidential candidate and current governor of Florida Ron DeSantis has frequently stated that he would outlaw a CBDC if elected president because he views it as a sort of “government-sanctioned surveillance.”
“If FedNow does indeed become a programmable CBDC, then it could theoretically be used to block payments for items the government doesn’t favor or to cut out people from the financial system who are seen as threatening in some way to governing authorities, aka, political opponents,” said Dave Weisberger, CEO and co-founder of CoinRoutes said. “In that situation, things could get dystopian very quickly.”
The possibility of a publicly-issued digital currency has been under investigation by Fed officials, and Fed chairman Jerome Powell has frequently endorsed the investigation.The Bank of International Settlement produced a study detailing central banks’ preparations for a CBDC and its advantages in advance of this week’s G20 Summit in India.
“The problem of course is that the government is going to have to bit ways over the digital token and they’re going to be able to permission them and censor them for certain types of people in certain types of ways, or certain types of transactions,” said Bianco.
According to a blog post by the Bank Policy Institute (BPI), even banks themselves have expressed skepticism about FedNow and criticized its lack of a clear business plan and organizational structure. This is despite the fact that the system is funded by public dollars.Some banks profit from late payments, according to some experts, and they incorporate it into their business models.
In their doubt of FedNow, banks and blockchain purists, incumbents and disruptors may make rather unusual bedfellows.A seasoned futures and options trader and managing director of TJM Institutional Services, Jim Iuorio stated that bitcoin (BTC) was created in part as a substitute for the old financial system, which is subject to strict regulation and oversight.
“Cynics see the launch of Fednow to be a move toward an eventual central bank digital currency and a cashless society,” Iuorio said. ”They argue that the government having access to every transaction opens the door to authoritarianism and abuse.”