COVID-19 Relief Spurs Federal Reserve Towards Digital Payments with FEDNow
The Federal Reserve has grown bullish on digital payments technology as the COVID-19 pandemic has highlighted the need to provide faster methods of relief. The United States central bank has announced the accelerated development of its own platform—FedNow.
Federal Reserve Board Governor Lael Brainard said in a webinar on August 6, the United States central bank will launch its instant payment platform FedNow by 2023 or “as soon as practically possible.”
According to Brainard, the toll of the COVID-19 pandemic on the household and communities across the United States has heightened the urgency for the Fed to create an inclusive instant payments system.
“The rapid expenditure of COVID emergency relief payments highlighted the critical importance of having a resilient instant payments infrastructure with nationwide reach, especially for households and small businesses with cash flow constraints.”
The instant payments platform called FedNow, was initiated last year in response to private-sector, real-time, gross settlement initiatives, and now is being proposed as it would play a key role in future crisis situations.
Under the CARES ACT, the Federal Reserve has processed most of the COVID-19 stimulus relief payments to households and businesses using direct deposit, prepaid debit cards and checks. The process has been slow and many citizens waited days and even weeks to receive any relief.
The instant payments platform called FedNow was initiated last year in response to private-sector, real-time, gross settlement initiatives, and now is being proposed as it could play a key role in future crisis situations.
Brainard said, “An instant payment infrastructure ensures the funds are available immediately, which could be especially important for households on fixed incomes […] waiting for these funds to become available to pay a bill can mean overdraft fees or late fees that can compound, or lead to reliance on more costly sources of credit.”
FED Bullish on Innovation
While the Federal Reserve aims to be the US leader in providing payment and settlement services and promote a safe and efficient United States payment system, the FedNow platform is unlikely to be ready until 2023-2024.
The Federal Reserve Board Governor acknowledged the work of the private sector leading innovation and accelerating the pace of digitalization, in particular Facebook’s Libra project, but alluded to regulatory hurdles still in the way of Libra and similar projects.
Brainard said, “Efforts by global stablecoin networks such as Facebook's Libra project to drive the next stage of payment innovation have raised other fundamental questions about legal and regulatory safeguards, financial stability, and the appropriate role of private money.”
While the Fed appears happy to support the innovation of the private sector, having instant payments handled through the central banks FedNow Service “can be a catalyst for innovation in the market by providing a neutral platform on which the private sector can build to offer safe, efficient instant payment services to users across the country.”
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