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What is FedNow?
On June 29th, the U.S. Federal Reserve announced that 57 firms have been certified to utilize its new instant payments system called “FedNow.” The Federal Reserve said 41 banks and 15 service providers would be “early adopters” after its late July launch. The Federal Reserve officially launched this “wonderful” new product, and FedNow is now live at 35 banks. Major banks, such as JPMorgan Chase and Wells Fargo, are two of the early adopters, as is the U.S. Treasury.
What is FedNow?
The FedNow Service went live on July 20, 2023. It is available to depository institutions in the United States and enables individuals and businesses to send instant payments through their depository institution accounts. The service is a flexible, neutral platform that supports a broad variety of instant payments. At the most fundamental level, the service provides interbank clearing and settlement that enables funds to be transferred from the account of a sender to the account of a receiver in near real-time and at any time, any day of the year. Depository institutions and their service providers can build on this fundamental capability to offer value-added services to their customers.
The FedNow Service is designed to maintain uninterrupted 24x7x365 processing with security features to support payment integrity and data security. The service has a 24-hour business day each day of the week, including weekends and holidays. End-of-day balances are reported on Federal Reserve accounting records for each participating depository institution on each FedNow Service business day. Access to intraday credit is provided to participants in the FedNow Service during its business day under the same terms and conditions as for other Federal Reserve services.
The FedNow Service provides liquidity management transfer capability to support instant payment services. The liquidity management transfer enables participants in the FedNow Service to transfer funds to one another to support liquidity needs related to payment activity in the FedNow Service. The transfer also supports participants in a private-sector instant payment service backed by a joint account at a Reserve Bank by enabling transfers between the master accounts of participants and a joint account.
The first release of the FedNow Service also includes optional features: fraud prevention tools, the ability to join initially as a receive-only participant, request for payment capability, and tools to support participants in their handling of payment inquiries. Additional features and service enhancements will be introduced over time.
FedNow is a new service that will immediately allow the transfer of funds. Everything will be run through the Federal Reserve so that each transaction will happen fast. Since this is the public’s first interaction with using the Fed directly, it will take some adjusting. So, if the Fed gives the public a little taste after they get a little taste, they’ll be all in and wanting more. Then, they can start incorporating the complete plan. That’s what this is all about.
The Federal Reserve claims this is the alternative to a CBDC — a Central Bank Digital Currency. But really, what this is is a stepping stone to a CBDC. Once the public gets more comfortable with the speed of FedNow and the system is accepted as the standard procedure, you’ll get a Central Bank Digital Currency.
Uniform Commercial Code
A few steps must be completed before a full-blown CBDC system can be launched successfully. This is where the Uniform Commercial Code comes into play. The Uniform Commercial Code is a set of rules governing commercial transactions to hold assets as collateral on loans and contracts. Lenders use the Uniform Commercial Code to prevent borrowers from selling the collateral or obtaining additional financing using that same collateral as security.
Lawmakers in Iowa, Indiana, Nebraska, and New Hampshire have recently adopted laws that address digital assets; this is known as UCC Article 12. Eventually, all fifty states will have lawmakers looking at updating the Uniform Commercial Code to establish a foundation for a future Central Bank Digital Currency.
Central Bank Digital Currency
Central Bank Digital Currency is not really money. So, how will the commercial code deal with that? You can’t put Central Bank Digital Dollars in your pocket and walk out the door. That means Digital Dollars won’t be in your actual possession. Currently, digital money, like Bitcoin, is something you can put on a thumb drive. That’s something you can possess. But with digital currency, you won’t be able to do that. Central Bank Digital Dollars will not be something you can physically control. This is why lawmakers are updating the Uniform Commercial Code the way they are.
To make a payment, the sender and receiver must have bank accounts that are part of the FedNow network. Current payment platforms such as PayPal and Venmo are not directly deposited into a bank account. There is a processing window, so those funds could take a day or two before they are available. FedNow will eliminate that waiting period. Will that be enough incentive for this new structure to be accepted?
Changing how a nation’s currency is used for both buyer and seller and making a change of that magnitude is a process that will not happen overnight. If their goal is to get people excited about and eager to use it, you start slowly and watch as you gradually gain total acceptance.
Remember the frog in the kettle illustration? If you drop a frog in a kettle of boiling water, it will jump out immediately as it reacts to the pain. But, if you put the frog in room temperature water and slowly turn up the heat, the frog will stay in the kettle and eventually cook to death.
The frog in the kettle illustration fits because, like that frog, the Federal Reserve will need to get people comfortable with using this system, and to do that, it will need to be fast and convenient. Who wouldn’t want their money right away? Having funds in your account instantly feels like a win without waiting for a check or ACH to clear. Your current balance and your available balance would instantly be the same.
Another key will be to get as many people voluntarily using this platform as soon as possible. I assume we can expect to receive generous offers, such as highlighting how unbelievably convenient this will be and offering free or cheap transactions to secure achieving this goal.
If our government were to close the current system on Friday and open a brand-new digital system on Monday morning, there would be resistance and rebellion. But by doing it slowly, they can achieve acceptance.
For now, the early infrastructure is in place for CBDCs. Remember them bones; they end up being all connected. Well, the launch of FedNow will be one of the bones connected to Central Bank Digital Currency. Is that not good?
CBDC Anti-Surveillance State Act
On February 22, 2023, Tom Emmer, a U.S. Congressman from Minnesota, posted on X (Formerly Twitter), “Today, I introduced the CBDC Anti-Surveillance State Act to halt efforts of unelected bureaucrats in Washington, DC from stripping Americans of their right to financial privacy.”
Seven months later, on Tuesday, September 12th, Congressman Emmer announced that he and 49 other lawmakers have reintroduced the CBDC Anti-Surveillance State Act. So now, Fifty U.S. lawmakers have reintroduced the CBDC Anti-Surveillance State Act to prohibit the Federal Reserve from issuing a Central Bank Digital Currency, which is in direct opposition to the World Economic Forum’s agenda, which seeks to remove all personal freedoms and privacy with things like a social credit score and surveillance.