CLAIM: The Federal Reserve is launching a digital currency app, FedNow, that will eliminate physical cash.
THE FACTS: FedNow is a service that allows banks and credit unions to transfer funds more quickly. It’s not a form of currency, nor is it a move toward eliminating cash, the Board of Governors of the Federal Reserve System stated. FedNow has been in the works since 2019 and will launch in July 2023. In recent days, social media users have misrepresented the service, claiming it is a step toward “getting rid of physical money and having digital currency.” In response to the misinformation and confusion, the Federal Reserve reiterated on Twitter that FedNow is not a form of currency. Instead, it is a payments service that will be available to banks and credit unions, enabling them to speed up the processing of checks and electronic payments. This will mean people can access their paychecks and transfer money to other accounts instantly, any time of the day or week. Currently, these processes can take up to three days to clear and are often delayed on holidays and weekends. “FedNow has nothing to do with replacing cash. It is an upgrade to the decades old payment system,” said Aaron Klein, senior fellow in economic studies at the Brookings Institution, in an email to the AP. Klein noted that if banks use the service, it will make payments faster, resulting in fewer overdraft fees, late fees and visits to check cashers. Many countries already have real-time payment systems similar to FedNow, including England. The U.S. already has a real time payment network, but it’s run by private banks. The Fed is separately researching the potential to issue a digital currency, commonly referred to as a “central bank digital currency,” or CBDC. Yet that research is in its early phases and there isn’t uniform support among Fed officials for issuing such a currency. A central bank digital currency would potentially allow Americans to make electronic transactions without relying on a third party, such as a bank. “The Federal Reserve has made no decision on issuing a central bank digital currency and would not do so without clear support from Congress and the executive branch, ideally in the form of a specific authorizing law,” the Federal Reserve’s website states. “A CBDC would not replace cash or other payment options.”
