Is the US central bank bringing CBDC through the back door?

Digital central bank currencies (CBDCs) are considered competitors for Bitcoin and Co. In countries like China, they are already showing their dystopian potential. In the USA, the introduction is still a long way off, declared the head of the US Federal Reserve, Jerome Powell, in a March issue hearing before Congress. However, real-time payments via the central bank are said to be “very, very soon”. That time now seems to have come. And maybe with him too: a CBDC through the back door.

In “late July” goes according to official information FedNow at the start. The Federal Reserve (Fed) has been working on the new payment service since 2019. In the USA, it will soon enable “real-time, 24/7, every day of the year” payments, “regardless of size or geographic location”, so it says the fed Also on board: 57 of the largest US bankswhich recently completed the “formal testing phase”.

FedNow as a kind of CBDC system

FedNow is basically a real-time payment network between banks and other financial institutions. It works similar to PayPal, but processes transactions in seconds and for low fees: from 0.01 to one US dollar, depending on the sender and purpose. The payment service relies on one international standard for digital payments, which cryptos like Ripple or Stellar also use. Also, the service is available 24/7.

The nodes of the network form institutes that master account hold at the US Federal Reserve. If a payment is requested, the relevant institute notifies the recipient bank, which then credits the account of the respective user. With the start of the first of six phases in July, only core functions such as sending payments should be possible. More are to follow.

In its mature form, FedNow will then function like a digital central bank currency system. Through a network of state-authorized banks, the Federal Reserve could gain control and oversight of US citizens’ transactions. In this way, the central bank would have access to the functions of a CBDC without having to create a digital dollar itself.

Farewell to privacy

The implications of this technology are readily apparent. The payment network is not license-free like Bitcoin and Co. Money transfers are capped at $100,000 per person by default and extendable to a maximum of $500,000. There should be no limits to the possible orders per day. Really peer-to-peer, like Bitcoin and Co., FedNow only works astray. The banks retain their role as middlemen. Participating institutions are required to track and “report” transactions. This is how you want to prevent “fraudulent activities” and exclude suspicious users from the network.

It is initially up to the institutions to decide which transactions they classify as suspicious. If certain users are blacklisted by a bank, others can quickly follow suit – with transaction limits and other restrictions. “Unwanted” activities were easily eliminated. Privacy, data protection and self-determination: none.

FedNow is still voluntary

The Federal Reserve is still presenting its payment service as a useful extension to the existing infrastructure. If you don’t want to, you don’t have to use it. That could change soon. Not by chance the Fed announced the launch of FedNows at the same time that the US banking crisis began with the collapse of the Silicon Valley Bank (SVB). This made it clear, especially to customers of smaller regional banks, that their deposits are only really safe with large “too big to fail” banks under the protective umbrella of the Federal Reserve. They could now migrate to the big institutions and become involuntary users of the FedNow network, which offers the nation a safe “alternative” to crumbling banking in times of crisis. In the worst case, this voluntary alternative becomes the “only way out”.