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FedNow Launch Sparks Speculation on Future of Digital Dollar and Stablecoins

Mar 19, 2023

The Federal Reserve's upcoming launch of FedNow has sparked speculation about the potential impact on a CBDC and stablecoins

The Federal Reserve's upcoming launch of FedNow, an instant payment service, has sparked speculation about the potential impact it could have on a digital dollar and stablecoins. With its ability to facilitate real-time transactions and provide customers with immediate access to funds, some have suggested that FedNow could supplant the benefits of a blockchain-based U.S. central bank digital currency.


However, Fed Chairman Jerome Powell has stated that the central bank is not close to releasing a U.S. CBDC, although he has hinted that "We'll have real-time payments in this country very, very soon." In the meantime, there is a growing need for stablecoins, as evidenced by Coinbase CEO Brian Armstrong's recent advocacy for a US-backed stablecoin.


Armstrong argues that creating a USD stablecoin on the blockchain would provide access to the dollar to millions of previously unbanked and underbanked people, as well as ensuring that the dollar remains the global reserve currency both on and off-chain.


Armstrong said,


“Imagine a world in which the U.S. issues its own USD stablecoin on the blockchain. Not only would this provide access to the dollar to millions of the previously unbanked and underbanked people, but it would also be the de facto digital currency for remittances and international currency transfers ensuring that the dollar remains the global reserve currency both on and off-chain.”


Acknowledging the potential of stablecoins, Jeremy Allaire, CEO of Circle, acknowledged that their USDC Stablecoin is serving as a proxy for a central bank digital currency. However, concerns surrounding the regulation and safeguards of stablecoins still exist. The Federal Reserve is currently in discussions regarding the potential form of a US CBDC, with Chairman Powell noting that it would be "private" but not "anonymous."


While CBDCs could provide greater financial access and flexibility, they also require users to trust a centralised intermediary to not censor, freeze, restrict, or devalue their money. As the discussion around the role of a digital dollar and stablecoins continues, it will be crucial to balance innovation and accessibility with security and privacy concerns.


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