Federal Reserve’s ‘FedNow’ Launch Triggers Fresh Speculation Over Digital Dollar

The U.S. Federal Reserve denies that its new instant payments service, FedNow, is in any way tied to the digital asset space.

But experts say the new system could lay the groundwork for the infrastructure needed for a potential central bank digital currency (CBDC) in the U.S. And so this week’s announcement has led to a fresh airing of warnings about potential privacy and control risks around a digital dollar.

The Fed on Thursday officially launched the service, which makes the process of sending payments in the U.S. almost instant, as opposed to a few hours or days that sending money from account to account currently takes.

Some crypto enthusiasts saw the release as a form of validation, because the FedNow project adopts a key goal of the digital asset industry:moving money around easily and quickly, and at any time of day or the week, even if banks are closed. FedNow will operate 24 hours a day.

“This is a payment system, not a digital token or a CBDC, but it is something that can be used to facilitate the creation of a CBDC,” said Jim Bianco, president of Bianco Research.

But the FedNow might be prone to some of the same concerns shadowing CBDC development.

Some lawmakers and political leaders, especially among Republicans, have expressed concerns that a CBDC might be prone to surveillance by authorities, or that they might be able to censor transactions. Current Florida Governor and GOP presidential hopeful Ron DeSantis, for example, has repeatedly said that he would ban a CBDC if elected president as he sees it as a form of “government-sanctioned surveillance.”

“If FedNow does indeed become a programmable CBDC, then it could theoretically be used to block payments for items the government doesn’t favor or to cut out people from the financial system who are seen as threatening in some way to governing authorities, aka, political opponents,” said Dave Weisberger, CEO and co-founder of CoinRoutes said. “In that situation, things could get dystopian very quickly.”

Officials at the Fed have been studying the potential for a government-issued digital currency, and Fed chair Jerome Powell himself has repeatedly vouched for the exploration. As preparation for the G20 Summit in India earlier this week, The Bank of International Settlement published a report laying out…