Regulatory Update: Federal Reserve to Launch New Payment System "FedNow" Within Two Years, Targeting Stablecoins: Concealed Significant Financial Risks

Federal Reserve Board Governor Lael Brainard mentioned the latest progress of the Federal Reserve on Central Bank Digital Currency (CBDC) in a recent public speech. In addition to explaining various factors to consider in the preliminary work for CBDC, she also revealed that the Federal Reserve will release an official document on central bank digital currency in the summer.

During May 24th to May 27th, 2021, Consensus 2021, a four-day event hosted by CoinDesk, took place. For a segment of Lael Brainard's speech, click here. According to a report previously released by the Federal Reserve, their thoughts on CBDC are as follows:

Enhanced Focus on CBDC

Recent global developments in digital currencies have prompted increased attention from the Federal Reserve on Central Bank Digital Currencies (CBDCs) for the following reasons:

• Private digital currencies and stablecoins are continuing to expand.
• The widespread adoption of digital payments is increasing rapidly.
• CBDCs offer superior cross-border remittance capabilities compared to fiat currencies.
• The distribution of stimulus checks highlights the real-time and efficient nature of CBDCs.

Policy Considerations

Considering the potential costs and risks associated with CBDCs and how broader policy objectives will be formulated, the Federal Reserve's considerations include:

• CBDCs are better suited to protect consumers and stabilize financial risks compared to stablecoins.
• They will reduce, or even eliminate, financial inefficiencies in payments and settlements.
• Eliminate a substantial amount of complex, costly, and opaque intermediaries in cross-border remittances.
• Any design of CBDCs should serve as a complement to currency and bank accounts, not a replacement.
• Protect privacy and maintain financial integrity: Ensure user privacy while being able to track illegal activities.

• Still, 5.4% of U.S. households are unable to use bank accounts and related payment methods, and CBDCs may offer a more widespread solution.

Technical Considerations

Criminal Risks

Concerning emerging technologies like distributed ledgers, the Federal Reserve is actively monitoring developments in the digital asset space to mitigate related risks. They are collaborating with industry players and regulatory bodies to address regulatory framework gaps.

Public Consultation

Given the increasing use of private digital currencies and the importance of CBDCs in cross-border remittances and financial inclusion, the Federal Reserve is actively engaged in related research and seeking public opinions. They plan to release an official public discussion document in the summer.

New Payment System "FedNow"

The Federal Reserve plans to launch the real-time payment infrastructure "FedNow Service" within the next two years, stating:

FedNow will enable banks of all sizes across the U.S. to provide secure, efficient, and real-time payment services 24/7. Consumers and businesses can easily send and receive funds on their mobile devices, with recipients gaining immediate access to the funds.

Based on remarks from Federal Reserve Governor Brainard, stablecoins' increasing popularity and associated risks are frequently mentioned. It can be anticipated that regulations on stablecoins will eventually be implemented. However, the U.S. appears to lag significantly behind China's DCEP, which has already conducted multiple pilot tests on the progress of CBDCs.