The U.S. Federal Reserve will activate its long-awaited real-time payments system in July, the central bank said in a statement Wednesday, marking a transition that some have seen as a government challenge to the crypto sector’s benefits of instant transactions.
The FedNow service, which aims to solve the existing delays in clearing financial transactions between institutions, will start certifying its first participants early next month. The system will work around the clock and provide immediate full access to funds.
“We urge financial institutions and their industry partners to go full steam ahead with preparations to join the FedNow Service,” said Ken Montgomery, chief operating officer at the Federal Reserve Bank of Boston, who worked on the new system, which he said will offer a “modern instant payment solution.”
FedNow has also been seen as a potential precursor to a central bank digital currency (CBDC), although the service could also undermine one of the key strengths of a digital dollar – the ability to transfer instantly. Fed officials have said the agency has not made any decisions on a future U.S. CBDC, which they say would need support from Congress, the Biden administration and the public.
Jaret Seiberg, an analyst at TD Cowen, suggested that the system could actually be useful for crypto investors as a way for them “to fund and pay out trades without having to leave cash or digital dollars on a trading platform,” he wrote in a client note on Wednesday.
However, the Fed’s new system for transactions will not be the first, as the banking industry had already launched its own RTP network. The similar competitor from the private sector has been around since 2017.
UPDATE (15 March 2023, 23:02 UTC): Adding comment from TD Cowen.