.svg)
FedNow, the upcoming US instant payment system, has been described as a CBDC by Democratic presidential candidate Robert F Kennedy Jr, who claims it is the "first step" to ultimate government surveillance.
In a tweet last week, RFK Jr wrote that the Federal Reserve will introduce “its FedNow central bank digital currency (CBDC)” in July, which is a “slippery slope to financial slavery and political tyranny”.
The confusion over FedNow, an instant payment system, and a US CBDC, a potential future payment method, has spread across the social media platform, raising fears of serious government overreach related to how people spend their money.
“The central bank will have the power to enforce dollar limits on our transactions restricting where you can send money, where you can spend it, and when money expires,” RFK Jr wrote.
Similar arguments around a US CBDC have already been raised and echoed by Florida governor Ron DeSantis, who is expected to run for president for the Republican party.
As reported by VIXIO, DeSantis earlier introduced a bill in Florida to ban the use of a federal US CBDC, even though that does not exist yet.
Although DeSantis did not explicitly attack the Fed’s upcoming payment system, he tuned in to the debate with his anti-CBDC arguments.
“Unaccountable institutions cannot impose a CBDC on Americans. They will tell us that CBDC won’t be abused but we are wise enough to know better,” DeSantis wrote in response to the Fed's attempt to shed light on the distinction between the new payment infrastructure and a CBDC.
FedNow, CBDC later?
After the misinformed claims, the Fed posted various tweets to dismantle the confusion around its upcoming FedNow service.
The regulator emphasised that “FedNow is not related to a digital currency”. It is “neither a form of currency nor a step toward eliminating any form of payment, including cash.”
To assure that the Fed cannot be used for government control, the regulator underscored that it does not maintain accounts for individuals and provides financial services to banks and government entities only.
The Fed added that it has made “no decision on issuing a central bank digital currency (CBDC) and would not do so without clear support from Congress and executive branch, ideally in the form of a specific authorising law”.
Following the clarifications from the Fed and other experts, RFK Jr toned down his initial statements.
He quoted angel investor and crypto enthusiast Balaji Srinivasan as saying that “the distinction between FedNow and a CBDC is important from a technical standpoint, but not from a civil liberties standpoint”.
“The claim that FedNow is not the first step toward a CBDC would be more easily digestible were we not aware of the Biden administration’s steady barrage of hostile broadsides against cryptocurrencies,” the presidential candidate wrote.
Nonetheless, arguments that a central payment infrastructure would serve as a first step towards a CBDC and excessive government control may sound unfounded to those following the global payment modernisation efforts of the past years.
Several large economies built on democratic values, including the EU, have government-owned central payment infrastructures. FedNow will be the US equivalent of the EU’s TARGET Instant Payment Settlement (TIPS).
Additionally, the Fed already provides a central payment infrastructure called FedWire for real-time large-sum payments and FedACH for low-cost batched payment services.
FedNow is expected to launch in July and it will supplement these systems by enabling Americans to send low-value, low-cost payments around the clock.
Could all of this have an impact on FedNow?
It remains to be seen whether or not the misleading statements by presidential hopefuls that spread on social media will have an impact on the adoption of FedNow.
Partly because FedNow is simply the infrastructure layer and it will be the participating banks that provide consumer- and business-facing services.
Experts suggest FedNow will have bigger challenges than misguided statements from presidential hopefuls.
Many participants will only participate on a “receive only” basis at the launch, so there will not be too many sending parties when the service launches, according to Andrew Gómez, director at Lipis Advisors.
Some institutions will still need many months before they connect to the network and indeed enable their clients to send FedNow payments, he explained.
Even if the banks could connect, there is no Zelle equivalent for financial institutions participating in FedNow to easily initiate a transaction, Gómez noted.
