August 1, 2023—Since the Federal Reserve’s 2019 announcement of their intent to build a 24/7/365 interbank settlement service, misinformation has circulated about the agency’s true goals, network functionality, and the potential risk to businesses and consumers. Rumors and misinformation will damage public perception and slow adoption of the new payment rail. Credit unions can play a role in educating their members and highlighting its benefits to individuals and to the U.S. economy. We encourage you to continue to research these issues and to gather the information you need to serve your members.
Myth: The Fed has built a payment processing platform directly for businesses and consumers.
Fact: The FedNow® Service is a processing and messaging infrastructure designed to speed up the time it takes to move money through the banking system and to enable insured financial institutions to provide safe and efficient instant payment services. However, while the Federal Reserve built this network with end-to-end capability, they have not built any customer-facing products themselves. The Federal Reserve is relying on financial institutions and service providers to build innovative FedNow products and services that meet market demand. Only financial institutions can adopt and use FedNow, and determine how and when instant payments powered by the FedNow service are made available to their customers.
Myth: The FedNow Service gives the central bank the power to monitor, freeze, or seize private bank accounts.
Fact: Federal Reserve Bank officials and banking experts assert this instant payments platform in no way authorizes the agency to monitor, freeze, or seize accounts for any reason. The FedNow Service supports financial institution to financial institution transactions only and cannot access an individual or business account at a financial institution or assert any controls on how their monies are spent. Financial institutions are already required to report suspicious financial behavior and risks related to money laundering or terrorism, and FedNow will not expand this standard surveillance.
Myth: FedNow is a step toward a U.S. Central Bank Digital Currency and the elimination of cash.
Fact: Central Bank Digital Currency (CBDC) is defined as “a digital liability of a central bank that is widely available to the public,” or, more simply, a digital version of paper currency. Since the advent of private-sector digital banking products, including digital wallets and cryptocurrency, policymakers have been considering the potential benefits and risks of a U.S. CBDC and related technologies, including distributed ledgers. In 2022, the Fed issued Money and Payments: The U.S. Dollar in the Age of Digital Transformation to provide a foundation for policy discussions. However, because these conversations ran parallel with the development of the FedNow Service, many believe the projects are connected. The Federal Reserve has repeatedly contested these claims noting that the FedNow Service is neither a form of currency nor a step toward the elimination of cash or any other form of payment. And, while the Fed is involved with a number of technological initiatives to assess the feasibility of a future digital currencies, they have not yet determined that a CBDC would improve the U.S. domestic payments system. Industry experts agree that any consideration of CBDC will require significant legal, compliance, financial, technological, and regulatory review. Knowing this, the Fed will only proceed with a CBDC with “broad public and cross-governmental support,” including “clear support from the executive branch and from Congress, ideally in the form of a specific authorizing law.”