• The US Federal Reserve is introducing a new payment network called FedNow which will allow instant payments between US residents.
• FedNow could threaten the use of digital networks such as Ripple, Stellar Lumens, and stablecoins due to its fast transaction timing and low-cost fees.
• FedNow promises customers reliable intraday access to cleared funds with just a $25 monthly access fee.
The US Federal Reserve’s FedNow is expected to be launched in July 2023 and could affect the use of Ripple and stablecoins due to its fast transaction properties while eliminating middlemen from the process.
What is FedNow?
FedNow seeks to make USD settlements faster and cheaper across financial institutions on a peer-to-peer (P2P), business-to-business (B2B), and business-to-consumer (B2C) basis. It will allow almost any financial institution to settle payments with other institutions instantly, eliminating the usual ‚three to five business days‘ timing of legacy payment settlements. Moreover, it will provide payees who rely on cash flows reliable, intraday access to cleared funds with just a $25 monthly access fee.
Impact on Cryptocurrencies
Crypto enthusiasts have been criticizing traditional banks for their inconvenient location and banking hours, making accessing money limited in some way or risking chargebacks when sending transactions. The introduction of FedNow addresses all these concerns by providing faster and cheaper solutions that crypto users have been looking for, potentially crippling the effectiveness of stablecoins due its competitive cost advantage over running single nodes on most public blockchains.
Per Pareto’s principle, FedNow might only connect 20% of the world’s population on a peer-to-peer basis but still connects 80% of the world’s peer-to-peer electronic payments due being clearinghouse for the world’s reserve currency with reference rate for global trade as well as preeminent central bank in US economy.