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FedNow may weaken the case for the digital dollar

Deciding whether to create a digital dollar was a key part of an executive order President Joe Biden announced Wednesday morning (March 9) to create a uniform national policy on cryptocurrencies and other digital assets.

Read more: Biden issues executive order to accelerate crypto policy

But just as it was lighting a fire under the cause of a US central bank digital currency (CBDC), the Federal Reserve made another, much more low-key announcement that undermines one of the main arguments in favor of a blockchain-based CBDC: its ability to enable real-time payments.

The Fed spear a Overview of FedNow Service Providers Wednesday, highlighting 70 companies working on the US central bank’s end-to-end Instant Payments system.

Divided into more than a dozen categories ranging from digital wallets and risk management to core banking platforms and payment network operators, the showcase clearly shows the status of the process and the extent offers presented.

“There is no one-size-fits-all approach to instant payments, and flexibility around planning, implementation and adoption is a critical part of the service,” said Nick Stanescu, senior vice president and chief commercial officer of FedNow Service. “We are committed to working with the industry to develop an ecosystem that will support the end-to-end instant payment experience, and the showcase suggests we are off to a good start.”

It is the culmination of a six-month process, Connie Theienthe Fed’s senior vice president of industry relations, said, noting that the storefront “provides financial institutions and others with a range of vendors ready to help them plan and implement the FedNow service. , which will be launched next year”.

First come advantage

It’s those last four words that are critical to FedNow’s ability to weaken the case for a digital dollar.

Launching in 2023, FedNow will be years ahead of a digital dollar, which would take years to launch even if approved today. And given that the United States only announced its official interest in a CBDC on Wednesday, it will almost certainly take several years to reach that decision.

After all, Fed Chairman Jerome Powell has repeatedly said that the United States is not in a race to create a digital dollar.

See more : Fed’s Powell says CBDC will be years, not months, away

“We don’t feel the urge or the need to be first” to create a CBDC, he said in January 2021. “Indeed, we already have a first-mover advantage because [the U.S. dollar is] the reserve currency.

China, on the other hand, said it has a first-mover advantage because its CBDC is about to launch – with the technology completed and extensively tested in lotteries across the country that has yielded results. millions of dollars in digital yuan to tens of thousands of citizens.

And there are fears that China could use the digital yuan as a tool to challenge the primacy of the US dollar in the global financial system.

But do we need it?

Between FedNow and The Clearing House’s RTP network, there’s an important question to ask, according to Rob HunterDeputy General Counsel of The Clearing House.

Noting that most of the discussion around CBDCs has focused on their potential benefits, in a conversation with Karen Webster of PYMNTS, Hunter posed the question, “What problem does it actually solve?”

Read more: Real-time payments are coming – but do we need crypto to deliver it?

It’s a question Webster explored in much more detail in January.

While noting that there are “real use cases for a CBDC,” Webster also questioned whether the Fed is capable of being a source of innovation, especially on an ongoing basis.

See more : The three most important questions for the Fed on its CBDC plans

It “has never been seen as operating at the forefront of digital payments innovation,” she said. “Maybe that’s not even how it’s wired to work.”

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NEW PYMNTS DATA: ACCOUNT OPENING AND LOAN SERVICE IN THE DIGITAL ENVIRONMENT

On: Forty-two percent of US consumers are more likely to open accounts with financial institutions that facilitate automatic sharing of their bank details upon sign-up. The PYMNTS study Account opening and loan management in the digital environmentsurveyed 2,300 consumers to explore how FIs can leverage open banking to engage customers and create a better account opening experience.