• FedNow transfers money instantly, instead of the days or hours it takes in the U.S.
  • FedNow, the central bank’s digital U.S. Dollar initiative, is not linked to FedNow.

FedNow is a new instant payment service launched by the U.S. Federal Reserve on Thursday. This will significantly reduce the time it takes to transfer money in America, which is currently the largest economy.

35 banks and credit cooperatives have signed up to participate, according to the central bank. JPMorgan Chase, Wells Fargo and 16 other institutions are among the early adopters. The Fed claims that this will allow for just-in time access to invoices and paychecks.

This is a radical change from the old status quo when payments through the U.S. Banking System could take up to a few days or even hours to reach the recipient. Some countries have already switched to instant payments.

Fed Chair Jerome Powell stated in a press release that “the Federal Reserve created the FedNow Service” to make payments easier and faster over the next few years.

FedNow provides a feature that has been lauded by proponents of blockchains and cryptocurrencies for years: the ability to transfer money more easily. FedNow could increase friction between conventional financial systems and crypto, at a moment when U.S. regulatory agencies are taking aggressive measures to crack down on digital currency.

FedNow has been criticized for potentially building a path to a digital version of the U.S. Dollar. In a July 10, 2010 FAQ, Fed denied FedNow’s involvement in such plans.

Not a digital currency

The FedNow Service does not relate to a digital money, the Fed stated. Officials such as Janet Yellen of the Treasury have argued that the U.S. could consider a Central Bank Digital Currency. The FedNow Service does not constitute currency or a move to eliminate any payment method, including cash.

The Fed has announced that its new service will be available throughout the day. Central bank officials previously stated that payments could be processed within seconds. This is already common practice in many countries around the world. This is compared to the same-day service provided by the U.S. automated clearancehouse system or the delays of several days or even weeks when cashing checks.

Powell and other officials have said that the real-time payments network is necessary to avoid relying on private alternatives like Diem, the stablecoin (formerly named Libra) of Mark Zuckerberg’s Meta.

Read more about U.S. Federal Reserve Real-Time Payments system to be launched in July

UPDATE (20 July 2023 at 15:12 UTC). Added paragraph to provide additional details about FedNow.

UPDATE (2023 Jul 20, 15:44 UTC). Adds Fed Reserve FAQ regarding CBDC.

UPDATE (2023 Jul 20, 15:56 UTC). Adds FAQ link and clarifies posting date.

CORRECTION (20 July 2023, 17 29 UTC) Corrects spelling of Mark Zuckerberg’s first name.

Sandali Handagama, Nick Baker and Nick Baker edited the book.