The question that many people were asking when looking at a press release from yesterday on the Federal Reserve Bank’s announcement of a new interbank real-time settlement service is – “why now?”
It’s extremely curious timing – just after a rate cut clamored for by the president and investors alike, the Federal Reserve has apparently decided it’s time to modernize interbank payment systems that are in many ways based on legacy software.
“The Federal Reserve Board on Monday announced that the Federal Reserve Banks will develop a new round-the-clock real-time payment and settlement service, called the FedNow℠ Service, to support faster payments in the United States,” states a press release putting everyone on notice.
Another facet of this, though, is that the federal bank is announcing this news at a time when cryptocurrency is steadily gaining steam and threatening some of these traditional banking arrangements.
“Some members of the cryptocurrency community are nonplussed by the Fed’s plans to launch its own real-time payment system,” wrote Ana Alexandre in Cointelegraph today, citing remarks by BTC buffs like Anthony Pompliano, who tweeted in response: “Bitcoin is already available.”
We’ve reported on how cryptocurrency and blockchain systems have emerged as an alternative to the legacy international SWIFT payment system, and more recently, how Bitcoin is being considered as a digital alternative to equities that are being battered by trade protectionism.
Cryptocurrency enthusiasts are puzzled as to why the federal bank wouldn’t just use a cryptocurrency system instead of creating its own interbank verification system from scratch.
However, reading more closely into other regulatory news, we see that central banks are often loath to consider cryptocurrency, and instead, want to control it or fight it outright. As with the slowness of the SEC to consider a Bitcoin ETF, or warning remarks from institutions like the IMF and World Bank, finance leaders want to hold the doors against types of innovation that they feel might introduce new dangers. That’s behind the desire to “properly regulate” crypto – and it might even be behind the news of a new non-crypto Fed interbank system.
“The rapid evolution of technology presents a pivotal opportunity for the Federal Reserve and the payment industry to modernize the nation’s payment system and establish a safe and efficient foundation for the future,” write Fed spokespersons in the press release. “The Federal Reserve believes faster payment services, which enable the near-instantaneous transfer of funds day and night, weekend and weekdays, have the potential to become widely used and to yield economic benefits for individuals and businesses by providing them with more flexibility to manage their money and make time-sensitive payments.”
Join with us in keeping an eye on this important change.