FedNow Payment Processor to Launch in July

The Federal Reserve will launch the FedNow payment system in July following a short early adopter test in April. Payment processors are intermediaries between financial institutions and the end user. The system will allow bill payments, money transfers, and other consumer activities to move faster, cheaper, and in real time. Although the Fed denies it, many analysts believe the FedNow payment system is a critical infrastructure component for launching a CBDC. The FedNow is a federally managed payment processor developed by the Federal Reserve since 2017. The Fed states "it will be a safe and efficient instant payment infrastructure that will modernize the U.S. payment system.” The FedNow service will have similarities to private payment processors like PayPal, Cash App, and Venmo. The primary difference is that the Federal Reserve would be the intermediary and could have eyes on all transactions. 

Usually, banks settle funds at the end of the day in a process called core clearing. Suppose the coffee shop owner’s credit union and the supplier’s bank do several transactions with other customers. Suppose three credit union customers send $500 to customers at the bank, and four bank customers send $250 to credit union customers. Instead of doing seven transactions, there is one transaction at the end of the day. The credit union would send $250 to the bank to settle all transactions. The FedNow system eliminates the need for this type of end-of-day core clearing settlement and accounting methods.

No, but a payment processor is essential to introducing a CBDC. Think about a credit card transaction. Suppose you go to the sporting goods store to buy a fishing rod and pay with your Visa card. You would insert your card into the machine to process the transaction. Think of FedNow as an upgraded software in the credit card machine. You may not think about the transaction after you take your fishing rod, but the transaction still needs to be finished. There are still some components yet to happen. At the point of sale, the credit card company authorizes the payment and reserving funds. However, the transfer of funds will occur in a core clearing event later. Also, the credit card company wants to ensure that it gets paid back for the transaction, so it needs accounting software to ensure your monthly statement includes the fishing rod. The Fed has already completed its accounting software test.

The Federal Reserve and the U.S. government always state that these tests are not policy decisions but what needs to happen to determine the right course of action for releasing a CBDC. Here is the official statement from the Fed’s website. “This project is not intended to advance any specific policy outcome, nor is it intended to signal that the Federal Reserve will make any imminent decisions about the appropriateness of issuing a retail or wholesale CBDC, nor how one would necessarily be designed.” Despite frequent denials that the government is committed to a CBDC, President Biden on March 9, 2022, issued Executive Order 14067. The order committed the U.S. to the highest urgency to research and to develop a CBDC. Investment newsletters have found clever ways to discuss the executive order with terms like "Biden Bucks.”

In case you haven't noticed, the world has gone increasingly insane over the last few years. The world system probably feels chaotic and unstable because it is. There is an axiom politicians say: “Never let a crisis go to waste.” In other words, nothing can change the world like chaos, calamity, and fear (exactly why terrorists use the tactics they do). Do you remember the good ol' days of not having to be groped at airports by people receiving a lower wage than an Amazon warehouse employee? 

The difference between a conspiracy theorist and everyone else is that a conspiracy theorist thinks elites pre-plan crises specifically as a catalyst of change and social engineering. Whether they are planned or random, crises change the world. People generally dislike chaos, so they are willing to accept a new system if it quells it. In other words, chaos is necessary before establishing a new order. People must lose hope of a reasonable resolution before embracing a new approach. Before people widely accept a CBDC, they need a reason to do so. 

PayPal came into existence in 1998, and only 58% of Americans do at least one PayPal transaction per year. The Fed has been developing the FedNow since 2017. They seem very invested in its implementation. What type of problem would be solved to get rapid mass adoption of a government alternative? How massive would a currency crisis need to be for enough people to lose all hope to be comfortable letting the government monitor every transaction? 

You may want to get some precious metals.

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