- Governor Michelle Bowman said today that the Federal Reserve’s FedNow service could be ready by mid-2023.
- She suggested that the payments service addresses the need for a central bank digital currency (CDBC).
- She also said that the Federal Reserve is creating expectations for banks that want to provide crypto services.
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The U.S. Federal Reserve is considering a payment system that could reduce the need for a central bank digital currency (CDBC).
Federal Reserve Touts FedNow Benefits
A service called FedNow could fulfill a role envisioned for CBDCs.
Governor Michelle W. Bowman of the U.S. Federal Reserve made various comments on the matter today during a speech at the VenCent Fintech Conference in Little Rock, Arkansas. In her address, she said that the Federal Reserve is developing a service called FedNow, a payment service that is aimed at depository institutions.
Bowman said that FedNow “addresses the issues that some have raised about the need for a CBDC.” FedNow does not rely on a government-issued stablecoin or CBDC. However, it fills a similar role in that it will allow financial institutions and customers to use a service that competes with other payment providers.
Bowman said that completing FedNow is a “high priority” and said the service should be ready by mid-2023. Development on the project began in 2019, and recent reports suggest the Federal Reserve has found participants and initiated a pilot program.
Though Bowman’s initial comments imply that FedNow reduces the need for a CBDC, the two efforts could be complementary. Bowman added that the Federal Reserve is considering whether a CBDC “might fit into the future U.S. money and payments landscape” even as it assesses the benefits of FedNow.
Bowman also commented on crypto-assets in general, noting that the Federal Reserve has witnessed “significant consumer demand” for banks to provide crypto services. She said that these trends have likely caused banks to want to better understand and facilitate these services for their customers.
She added that banks have seen some customer deposits go to crypto firms, noting that banks “would like to stem that outflow” by offering services that compete with the crypto industry.
Bowman warned that banks must consider the risks of offering crypto services. She said that the Federal Reserve is creating supervisory expectations for banks on issues like crypto custody, buying, selling, and lending as well as stablecoin issuance.
Yesterday, the Federal Reserve published information on those matters in a separate supervisory letter.
The Federal Reserve has long been at the center of CBDC development and other crypto regulations. Earlier this year, the government agency delivered a report on CBDCs that weighed the costs and benefits of such an asset.
The government agency was also responsible for multiple interest rate hikes this year, the latest of which occurred at the end of July and seemingly boosted crypto prices.
Disclosure: At the time of writing, the author of this piece owned BTC, ETH, and other cryptocurrencies.
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