• The U.S. Central Bank has responded to recent criticism of the Fednow service, clarifying that it is neither a form of currency nor a step towards eliminating any payment methods, including cash.
• Several prominent economists and politicians have expressed concern about the potential for surveillance associated with an American central bank digital currency (CBDC).
• The Fed emphasizes that its Fednow project does not involve a CBDC initiative, and that such initiatives would only be possible with approval from the executive branch and Congress.
The U.S. Federal Reserve announced the launch of the Fednow service in July 2023, which sparked immediate opposition and led many to believe it is one of the initial stages of an American central bank digital currency (CBDC). Several prominent economists and politicians have cautioned that a CBDC would bring about greater surveillance of Americans‘ financial transactions.
U.S Central Bank Clarification
In order to quell fears, the Fed issued an update on April 7th, 2023, in which it raised the questions,“Is Fednow replacing cash?“and „Is it a central bank digital currency?“. The central bank maintains that Fednow accomplishes neither of these objectives and emphasizes that the project is solely focused on „instant payments.“ The U.S Central Bank’s notice adds: Fednow is a payments service the Federal Reserve is making available for banks and credit unions to transfer funds; it is like other Federal Reserve payment services such as Fedwire or [Fed ACH]. Furthermore, they emphasize that “Fednow is not related to a digital currency” .
Criticisms & Concerns
Economist Richard Werner expressed concern about the timing of the Fednow project in a recent interview describing it as „suspicious“. Georgia Representative Marjorie Taylor Greene also criticized this initiative on April 5th .In response to these criticisms several US lawmakers have proposed legislation prohibiting CBDC initiatives.
White House Report
The White House’s recent „Economic Report“ notes however,the possibility that both Fednow and CBDC initiatives may be complementary rather than substitutes in achieving faster payments systems in America. This report also mentions how this could help spur innovation by allowing new forms of money simultaneously utilizing both private-sector models and public sector solutions .
To conclude ,though there are concerns regarding privacy rights brought about by CBDC initiatives ,The US Central Bank reaffirms that their current initiative does not involve such technology but rather seeks solely offer easier access to instant payments systems without replacing any other forms of traditional payments such as cash .