The Difference Between FedNow And CBDC
This is a topic of confusion, at least among the YouTube crowd. Many people are mixing the two up. The reality is the CBDC for the USD is not coming in the next year.
In this video I discuss what FedNow and how it works. We also delve upon how the system is going to change after it is updated in 2023.
▶️ 3Speak
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I imagine that they are similar but there will be some differences which you have to know and understand very well
I think it's good that CBDCs are going to take a while to come out and would the FedNow systems mean that banks won't charge us to have faster transfers?
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CBDC’s can take their sweet ass time to come out that’s for sure!
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Summary:
In this video, Task discusses the difference between Central Bank Digital Currencies (CBDCs) and FedNow. He clarifies that a CBDC for the US dollar is still in development and distinguishes it from FedNow, which is the Federal Reserve's payment system for settling transactions among member banks. Task explains the process of settlements between banks and how FedNow will bring instant settlement capabilities by 2023, similar to what blockchain technology enables. He emphasizes that FedNow won't change the money supply or how banks operate, unlike a CBDC which may disrupt the banking system.
Detailed Article:
Task begins the video by addressing the confusion surrounding CBDCs and FedNow, shedding light on the ongoing development of a potential central bank digital currency for the US dollar. He highlights MIT's involvement in the coding, the Federal Reserve's research and initial report, and President Biden's executive order for feedback collection and environmental impact assessment over a specified period. Task makes it clear that a CBDC, often referred to as Fedcoin, is distinct from FedNow.
Moving on to FedNow, Task delves into the current process of settlements between banks, where transactions between different banks are netted out at the end of the day to determine the final amount one bank owes another. He explains the implications of these settlements on reserve requirements and how FedNow aims to revolutionize this system by enabling instantaneous settlements, essentially transitioning from a net settlement system to a gross settlement system.
Task draws parallels between FedNow's goals and the capabilities of blockchain technology, citing Hive's settlement time as an example. He anticipates that FedNow's implementation will lead to instant availability of funds without any holds, thereby modernizing the banking system. He stresses that FedNow's enhancements do not alter the money supply dynamics or commercial bank operations, unlike a potential CBDC.
Task also touches upon the political and banking dynamics related to the development of a CBDC, hinting at potential resistance from bankers like Jerome Powell due to the perceived impact on the existing banking system. He concludes by expressing optimism about FedNow's imminent rollout in 2023, positioning it as a significant leap towards aligning the banking sector with modern technologies and the demands of the digital age.
In essence, Task's video serves as an informative piece clarifying the key distinctions between CBDCs and FedNow, outlining the operational intricacies of banking settlements, and projecting the transformative impact of FedNow's upcoming advancements on the financial ecosystem.