Instant payment service FedNow will be released in July 2023. Its main goal is to reduce the gap in payment time between financial institutions in the United States.
The U.S. Federal Reserve announced the launch of the instant payment system FedNow in July 2023. The network will make payments between consumers, merchants, and banks “in seconds.”
FedNow is an instant payment service that enables financial institutions to transfer funds between accounts in real time, 24 hours a day, seven days a week. Unlike cryptocurrencies or central bank digital currencies (CBDCs), FedNow does not use blockchain technology and operates through the existing banking system. The service was designed to modernize domestic payments and reduce settlement delays across the U.S. financial sector.
According to Tom Barkin, President of the Federal Reserve Bank of Richmond, the service will “help financial institutions serve customer needs for instant payments” and solve accessibility problems.
Key Similarities Between FedNow and CBDCs
Although FedNow and CBDCs rely on different technologies, supporters and critics have pointed to several similarities between the two systems:
- Near-instant payment processing
- Round-the-clock availability
- Direct involvement of central bank infrastructure
- Reduced reliance on legacy settlement systems
- Potential to improve payment accessibility
The Fed will “begin the formal certification of participants” during the first week of April in preparation for the service’s launch. For now, the service is in the last phase of testing with selected users and “financial institutions of all sizes.”
FedNow was announced in 2019. Its primary purpose is to provide real-time, round-the-clock settlements. The sender’s money held at a commercial bank would be redirected to the recipient through the Fed’s credit account system, which would manage fraud risks. The Fed officials also said that U.S. financial institutions’ participation in FedNow would be virtually mandatory.
Although FedNow won’t rely on blockchain, some users see it as an alternative to central bank digital currencies (CBDC). Regulatory officials don’t deny this state of affairs. For example, Lael Brainard, Vice Chair of the Fed, said last May that FedNow would perform the same functions as CBDCs. In her view, the service would replace the government’s digital currency as long as there are significant regulatory obstacles to its issuance.
Industry Perspective
Adam Bialy, Founder and CEO of Fiat Republic, believes the comparison between FedNow and CBDCs only partially reflects the broader transformation of digital payments.
FedNow solves a real problem — slow domestic payments. But it doesn’t address the programmability or cross-border utility that makes stablecoins interesting to the crypto economy. A CBDC might eventually fill that gap, but the U.S. is years away from one. In the meantime, MiCA-compliant e-money tokens are already doing the job in Europe: regulated, redeemable, and usable on-chain without the political baggage. The more relevant question for U.S. crypto firms isn’t FedNow vs CBDC but whether they can access that regulated infrastructure now.
Some Twitter users even saw FedNow’s upcoming launch as the root cause of repression against the crypto industry by the U.S. government. The crypto community views the recent forced shutdowns of crypto-friendly Silvergate Bank, Silicon Valley Bank, and Signature Bank as a “show of force,” calling the U.S. government’s actions controlled provocations.
