FedNow or FedNever? | Bankless

Dear Bankless Nation,

2023 has been a year of regulator aggression stateside, Gary Gensler has said that we don’t need crypto because we already have the U.S. Dollar.

Last week, The Fed debuted its FedNow instant payments system. It’s a step into the 21st century, but only if you’re interested in a more centralized, more controlled future of finance.

– Bankless team

Last Thursday, the U.S. Federal Reserve activated TradFi’s answer to the advancements offered by distributed ledger and blockchain technologies: FedNow, an instant payments system designed to modernize America’s archaic banking infrastructure and turn multi-day transaction wait times into a relic of the past.

Big TradFi institutions are signing on and customers of these early adopters will soon gain access to immediate 24/7/365 payment settlement, features all too familiar to stablecoin users, but this is where the similarities between FedNow services and crypto technologies cease.

Unfortunately, FedNow further centralizes the U.S. banking system and increases the purview of big government into the financial activities of everyday American citizens.

The Federal Reserve touts that FedNow will not grant access to individuals’ bank accounts or the ability to control how they spend their money, but it is obvious that America’s Central Bank will not be without a voice in the transaction settlement process. Instead of having the ability to directly restrict an individual from accessing their bank account, the Fed will provide “fraud prevention tools.”

While usage is optional for the first release of FedNow, we expect adoption of fraud prevention tools to be the norm among participating financial institutions.

Many FedNow commenters indicated concerns about the heightened risk of fraud when using real-time payments systems and noted the importance of fraud monitoring solutions in eliminating potential risks, leading us to believe they are likely to implement the Fed’s fraud prevention tools.

Despite current use cases for fraud prevention tools appearing innocuous, the ability for the Federal Reserve to self-anoint itself as the arbiter of good and bad transactions is frightening and has the potential to yield disastrous consequences!

Perhaps it is the first step towards an Orwellian surveillance state…

Undeniably, FedNow is superior to existing payments solutions and with the backing of America’s Central Bank, it’s only a matter of time before FedNow replaces the legacy system.

When it does, the Federal Reserve – and by extension the United States Government – will have the ability to impose immense financial hardships on anyone under the auspices of a “fraud alert” and blackball them from the financial system without the need for warrants or due process.

Admittedly, redundancy in fraud alerts may help cut back on illicit transaction activity, but at what cost?

They could easily be transformed into tools of the state to suppress the payments activity of marginalized groups or enact draconian financial controls.

Pundits suggest that a successful launch of FedNow may save us from the horrors of a CBDC, however, it’s clear that the Federal Reserve’s current solution to instant payments will also force Americans to cede marginal control over their financial autonomy to the government.

Whether the Fed’s newfound authority over the US domestic payments system is used for evil remains to be seen, and without any way to verify that it won’t be, we must simply trust.