FedNow Service Set to Begin Operation in July
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The much-anticipated real-time settlement payment rail, FedNow, is scheduled to come into operation by July.
The program, coming from the stable of the US Federal Reserve, will allow customers to settle financial transactions in seconds.
FedNow Onboarding Starts April
Central bank digital currencies (CBDCs) are state-sanctioned tokenized fiat duplicates. They run on blockchain technology, and several apex banks have turned to them to meet customers’ needs for a cheaper and more rapid payment solution.
However, the US government has shown little interest in going the CBDC route and has now announced the due date for its FedNow program.
According to a March 15 announcement, the US-sponsored payment rail will launch in July.
US commercial banks are expected to begin enlisting in the onboarding program by early April.
Providing more context about the launch, the Fed said the customer testing and certification program would be available in order to enable the live transfer of transactions using the system.
The certification exercise will entail undergoing an elaborate testing curriculum by early adopters to ensure operational readiness and network experience.
@federalreserve @frbservices announce July launch for the FedNow Service: https://t.co/a7kPqxkS7Q
— Federal Reserve (@federalreserve) March 15, 2023
Ramping up its operations in June, the Federal Reserve and early participants will execute production validation in a last gasp for final readiness for the July launch.
Speaking on the latest development, the first vice president of the Federal Bank of Boston, Ken Montogomery, stated that the upcoming FedNow Pilot Program would enable every financial institution, from the smallest to the largest, to offer a modern payment solution to meet the teeming American populace.
Montgomery also pointed out that the key narrative focuses on increasing the FedNow Service’s adoption. Given this, the Federal Reserve will aim to attract a diverse mix of financial institutions and the US Treasury.
The initiative first came into the spotlight in 2019 when the Federal Reserve noted the need for a more modern round-the-clock, real-time gross settlement service for the North American nation.
The Feds also said that the new FedNow network would incorporate a fraud risk management system to minimize the impact of illegal activities.
FedNow an Alternative to CBDCs
The current financial topography has been criticized for its lethargic settlement times. The slow confirmation for transactions and high costs have driven many to explore blockchain technology-powered solutions.
However, a growing number of world governments have leaned in the direction of CBDCs due to their capability to provide instant transaction clearance with minimal costs while still ensuring they retain full control of their national currencies.
The US government has been the most unfazed in the current sweep of blockchain-based solutions, and its FedNow service lacks the use of innovative technology.
According to the Feds, the FedNow Service will be powered by the FedLine Network. This will grant 10,000+ financial institutions access to this payment rail within the North American sovereign state.
The FedNow’s reliance on a state-run payment network shows an increasing apathy by the US government towards blockchain and cryptocurrencies.
In the last few weeks, crypto-focused financial institutions have closed down or entered receivership.
A recent one is the Silicon Valley Bank (SVB) which recently took up a voluntary insolvent position. On the back of this, private-run bank settlement services like Silvergate Enforcement Network (SEN) and Signature Bank (SigNet) have either shut down or are currently struggling.
Airing the government’s position in a House of Representative Committee on Financial Services, Federal Reserve Vice Chair Lael Brainard said that a blockchain-powered greenback would take much longer to set up due to the regulatory hurdles involved.
According to her, FedNow does the same things and clearly makes using CBDCs irrelevant.