On March 15, the Federal Reserve announced that the FedNow Service would launch in July 2023. According to the Federal Reserve, FedNow will “facilitate nationwide reach of instant payment services by financial institutions—regardless of size or geographic location—around the clock, every day of the year.” With FedNow, financial institutions will be able to clear and settle retail payments instantly at any time, including nights and weekends.

Payments between banks typically require clearing and settlement. Clearing means that banks exchange information about a payment, including checking for fraud. Settlement involves moving money to the recipient’s account.  FedNow is an interbank, like Automated Clearing House (ACH) Network. However unlike ACH, which processes its transfer in batches and tends to take one to three business days to complete, FedNow transfers will take seconds. 

The instantaneous transfer of funds can be likened to immediate gratification. We want something and we want it NOW. Having our payments made and received instantaneously sounds like a good thing. But is immediate gratification really in the best interest of individuals? The instantaneous transfer of funds can only occur by digitizing the funds being transferred. The digital dollar being advocated by the Federal Reserve is an example of a central bank digital currency (CBDC). At first glance the US currency already appears to be digitized. Many people rarely carry physical cash and prefer to use digital payment methods like a chipped credit card or their smartphones. Direct deposit has become the standard method of payment for employers. Dollars are transferred electronically, and no longer in the form of paper money and coins. However, those paper dollars and coins are interchangeable, exchangeable and can be substituted for something of equal value. For example, I can go to a yard sale with my paper cash, or checkbook, and make a purchase, exchanging my “paper money” for a specific item. 

CBDCs are entirely under bureaucratic control because every digital dollar has a unique fingerprint. Because CBDCs are programable, traceable, trackable and taxable, all transactions can be surveilled, recorded, or even reversed by the push of a button. CBDCs can be earmarked for certain purchases and forbidden from others. With a CBDC, the central bank can potentially force spending and prevent saving  by imposing or capping maximum savings levels. Additionally, in order to prevent people from going over their maximum savings “cap,” the central bank could confiscate unspent digital dollars.  People with no savings are more reliant on the government in emergency situations. In this scenario, if you’re unable to save for a rainy day, you would be at the mercy of the government who holds your financial purse strings. 

Many proponents of central bank digital currency (CBDC) are also supporters of a “cash-free” society. Some may argue that in a cashless society there would be less crime and theft, etc as there would be no cash to steal. However, a cashless society would lead to more bondage and less freedom for individuals. Digitizing central bank funds just gives the Fed more control (monopoly) over your money. People would not be able to escape a government-imposed fee on their idle money balances. People would have no alternative to electronic accounts, and have no way to stop the government from taking their money when, for example, the Fed declared a macroeconomic emergency.

Another huge concern would be the Fed’s ability to inflate and devalue the currency. Implementing CBDCs essentially removes private banks from the Fed’s methods of creating money. This would in effect guarantee future inflation and unlimited government spending. Private banks would no longer be necessary because all borrowing by consumers could happen directly through the central bank. The End Result?- The central banks have complete control over who does and does not get to borrow money. With no accountability, people could be turned down for loans for reasons other than the ability to repay the loan. Are you not ‘WOKE” enough? Do you donate money to churches? Do you financially support or volunteer for certain organizations? These could all be potential reasons that you  “denied” a mortgage or a loan. CBDCs make such hypothetical scenarios possible, and perhaps probable. 

In summary, FedNow is a new interbank Real Time Gross Settlement (RTGS)  payment system that will support instant clearing and settling of retail transactions that is supposed to go into effect in less than a week. The instantaneous transfer of funds will occur through the use of central bank digital currency or CBDCs. Individuals will not have access to FedNow directly, but instead will have access to the instant payment services offered by their financial institutions. As with other Fed payment services, FedNow will charge fees to its participating institutions. This inevitably means those fees will get passed onto the customers of said institutions, and instantaneously withdrawn from the patron’s accounts. The implementation of FedNow appears to actually remove an individual’s control over their money and place control into the hands of the government. There is a saying, “whoever controls the money has the power.” Our founding fathers built this country as a Republic, a government by the people, for the people. We have drifted very far from being governed “by the people and for the people.” It is highly unlikely that our country would benefit from our government having more power. 

Tickers to consider:  MARK , ASST , RNAZ ,  & IKT

Sylva Disclaimer: https://www.sylvacap.com/disclaimer