On Monday, the Fed announced it will start testing its instant payments platform, FedNow, next summer. The platform will help people make and receive payments faster. FedNow will extend the reach of instant payments to banks of every size.
Facebook's Crypto Project Libra
Earlier in 2019, Facebook parent Meta Platforms launched a stable coin for instant and borderless payments, Libra. Central banks around the world questioned the risk of money laundering through Libra because it was unregulated.
But since then, top instant payments players such as PayPal, Cash App and Venmo as well as blockchain platforms such as Ripple and Stellar have been rapidly changing the speed and reach of payments.
FedNow is different from established instant payments companies like Block, Venmo and PayPal, which require both payers and payees to open accounts on their platforms.
FedNow is part of an open loop, and payers can pay a much wider group of payees who do not have accounts on the same platform. It is also different from blockchain-enabled payment services such as Ripple and Stellar.
Ripple's XRP offers fast and low-cost cross-border transactions for banks and institutions and is centralized.
Stellar's decentralized open ledger offers international money transfers for the public through its native coin, Lumens (XLM).
Libra, FedNow, CBDC And The Digital Ledger
Libra's blockchain allowed transactions to be transparent. Though the project was shut down, PayPal and Visa have started accepting select cryptos. FedNow does not.
Debates over the U.S. launching a blockchain-enabled crypto coin or a central bank digital currency (CBDC) go back to before the Libra days.
The Fed's stance remains open. In February, Fed Gov. Lael Brainard said the Federal Reserve will conduct "research and experimentation related to distributed ledger technologies and their potential use case for digital currencies, including the potential for a CBDC."
In May, she pointed out that creating a CBDC would take five years and would require Congressional and White House approval. The U.S. CBDC would be a vital sign of global leadership and competitiveness. More than 85% of central banks are researching CBDCs, representing 95% of global GDP. Ten countries have implemented a full launch to date.
