US Launching Controversial Payment System
By Stefan J. Bos, Chief International Correspondent Worthy News
WASHINGTON (Worthy News) – The U.S. central bank is launching a payment system that critics view as a government attempt to control Americans’ expenditures and a trial run for a controversial digital currency.
The Federal Reserve says its system FedNow, prepared since 2019, will be released in July, with trials starting within weeks.
FedNow allows businesses and individual customers of participating banks to send and “receive payments 24/7”. That is in sharp contrast to the existing system that doesn’t process payments on the weekends.
The service aims to create “a leading-edge payments system that is resilient, adaptive, and accessible,” said Richmond Fed President Tom Barkin in a statement obtained by Worthy News.
But critical experts fear FedNow will lead to more control over people’s finances. Among those raising the alarm about the payment system is Forbes magazine contributor Norbert Michel, vice president and director of the Cato Institute’s Center for Monetary and Financial Alternatives.
Michel suggests that the FedNow system has the same negative implications as the separate U.S. Central Bank Digital Currency (CBDC) that the United States has been working on.
“If the tide continues to move in this direction, with central banks providing retail bank accounts to the general public and controlling every aspect of money, there will be little room left for a private banking industry,” Michel said.
U.S. HOUSE HEARING
Speaking before the U.S. House Financial Services Committee earlier this month, Fed Chairman Jerome Powell denied that the central bank was close to releasing CBDCs. But referring to FedNow, he hinted that “We’ll have real-time payments in this country very, very soon.”
Another member of the Fed Board of Governors, Michelle Bowman, said last year that “FedNow addresses the issues that some have raised about the need for a CBDC.”
Yet Bowman’s words did not rule out the introduction of CBDC soon.
Those seeing a role for the Federal Reserve in direct consumer banking say it would better protect Americans against bank collapses such as happened with the Silicon Valley Bank.
“FedAccounts would offer all the functionality of ordinary bank accounts with the exception of overdraft coverage,” wrote experts Morgan Ricks, John Crawford, and Lev Menand.
In a Roosevelt Institute paper seen by Worthy News, they added that the FedAccounts “have all the special features that banks currently enjoy on their central bank accounts—including unlimited secure balances, instant in-network payments, and a higher interest rate—as well as some additional, complementary features.
The three authors stressed that the “FedAccount program would bring genuinely transformational change to the monetary-financial system, in ways both obvious and unexpected.”
Yet the ability to fast access or move (digital) money through the Federal Reserve has raised questions about whether Americans will allow the government to monitor their lifestyles more easily.
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