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Will FedNow Kill Stablecoins?


The Federal Reserve’s FedNow Service launched in July 2023. It represents a significant leap forward in the evolution of payment systems in the United States. This real-time payments service streamlines transactions, enhances financial inclusion, and modernizes the way money moves across the nation.

However, amid the excitement surrounding FedNow, the absence of cryptocurrency integration has sparked discussions and raised questions.

What FedNow Promises

FedNow is designed to facilitate instant payments, operating 24/7, 365 days a year. This underlying system allows financial institutions to provide faster and more efficient payment services to their customers. Transactions that once took days can now be completed within seconds, significantly enhancing the speed and convenience of payments.

This system has various benefits. For businesses, instant payments mean improved cash flow management and reduced waiting times for funds. Consumers benefit from the ability to transfer money instantaneously, whether for personal or commercial purposes. Additionally, government agencies can disburse funds, such as tax refunds or social security payments, more efficiently.

FedNow also aims to enhance financial inclusion by providing more people with access to the banking system. For those who are unbanked or underbanked, the ability to send and receive payments quickly can be a game-changer. It opens up new opportunities for financial participation and economic growth.

The Absence of Cryptocurrency

Despite the advancements that FedNow brings, it notably excludes cryptocurrency from its framework. This omission has raised eyebrows, especially given the growing popularity and adoption of digital currencies like Bitcoin and Ethereum. The question arises: why has the Federal Reserve chosen to bypass crypto in this new payment system?

There are several reasons for this decision. First, the volatility of cryptocurrencies presents a significant challenge. The value of digital currencies can fluctuate wildly within short periods, making them less stable and reliable as a medium of exchange. For a system like FedNow, which aims to provide consistent and predictable payment services, this volatility may pose a major drawback.

Second, the regulatory environment surrounding cryptocurrencies is still evolving. The lack of clear and comprehensive regulations poses risks for integration into a national payment system.

Will FedNow Kill StableCoins?

FedNow caused a frenzy in the crypto space. Different crypto enthusiasts believe it may send the stablecoin packing. 

Will FedNow render stablecoins obsolete?

The answer is no. While FedNow and stablecoins both offer instant transactions, they cater to different markets with distinct attributes and user bases. We believe FedNow will succeed, and the stablecoin market will also continue to grow.

Stablecoins essentially brings U.S. Dollars on-chain, maintaining their value relative to traditional currencies while being freely traded on the blockchain. They serve various purposes in crypto markets, such as saving, trading, sending, and lending. They also provide global access to the U.S. dollar, which is particularly useful in countries with high inflation, and offer a low-cost, high-speed solution for cross-border transactions.

FedNow, in contrast, is essentially a real-time payment service designed to modernize U.S. payment infrastructure. It supports various transactions, no break-time, and ensures final settlement.

Despite their similarities, stablecoins and FedNow serve fundamentally different functions. Stablecoins maintain their unique advantages and will continue to thrive alongside FedNow.

In summary, FedNow is a significant step forward in modernizing the U.S. payment system. Its ability to facilitate instant payments offers numerous benefits for businesses, consumers, and government agencies alike. However, the absence of cryptocurrency from this system is a testament of the long journey that crypto has to go to overcome its inherent challenges.

Ultimately, FedNow has the potential to revolutionize the way money moves in the United States. Its real-time payment capabilities promise to enhance efficiency, financial inclusion, and economic participation. While the exclusion of cryptocurrency may raise questions, it also reflects the need for stability, security, and regulatory clarity in a national payment system. However, there is no cause for alarm.

Author: Makinde Adeniyi

The editorial team at #DisruptionBanking has taken all precautions to ensure that no persons or organisations have been adversely affected or offered any sort of financial advice in this article. This article is most definitely not financial advice.

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