The world changes, we do not, therein lies the irony that kills us.

                                                        ― Anne Rice, Interview with the Vampire

In an attempt to meet the demands of the fast-growing, cryptocurrency world, the Federal Reserve announced plans in August to develop and bring an interbank “real time” payment and settlement service built on blockchain technology.  A brainchild of the Fed’s Faster Payments Task Force [PDF], the “real time” service, called FedNow, would engage a private blockchain, such as Ripple, to “permit banks of every size in every community across the country to provide real-time payments to their customers.”

Patterning itself after one of the main features of blockchain — the decentralized, distributed ledger — FedNow is the Fed’s attempt to stem the tide of businesses’ and financial institutions’ gradual growth in the competing cryptocurrency market.  Distributed ledger technology is a digital record of transactions verified by consensus by individuals called “miners” who replicate and share digital data from each transaction.

With the ability to immediately confirm ledger transactions, FedNow would give the interbank community the opportunity for instantaneous transfers and settlements of funds— not just during normal banking hours, but on evenings, weekends and, arguably, holidays.  Indeed, some in Congress are so enthusiastic about the service that they are seeking to essentially codify the FedNow program into law under the “Payments Modernization Act of 2019.”  To that extent, Congress has recently introduced companion bills in both chambers that are presently being discussed and debated (S.2243/H.R.3951).

The Fed’s new “real time” transactional service is not, however, without its inherent drawbacks.  At least one expert opines that, “[FedNow’s] responsibilities must exceed the enabling of 24/7 internet consumption.  Beyond instant transaction settlement, it will be crucial that this new system makes room for communication with like-systems of remittances.” That should serve as a warning signal to the Fed as it preps FedNow to meet the anticipated demand for e-transaction capabilities involving U.S. dollars.  Another obstacle is FedNow’s projected start date, which at present is set for no earlier than 2023; that’s nearly four years from now, which, in the digital age, might as well be the next century.  In a time where blockchain has redefined the relationship between people, money, technology and, arguably, power, waiting several years to merely catch up to present day blockchain technology gives proponents of cryptocurrency that much more time to cut further into the global paper currency market.  While the U.S. leads the charge in restraining the unfettered spread of cryptocurrency into its markets through SEC regulations, lawsuits and multi-million dollar fines, the cryptocurrency market nonetheless stumbles and fumbles along.  Remarkably, during the time FedNow prepares itself for its 2023 launch (assuming — with a capital “A” —  everything about the launch goes according to plan), it is estimated another “$5 to $10 trillion” would be added to the cryptocoin exchange during that time.

Regardless, while the Fed continues to play “catch up,” it is — ironically enough — the advent blockchain that has spurred the Fed to break away from the very blocks and chains that have enslaved it to present day currency paradigm.  A paradigm that, as Columbia University’s Omid Malekan points out, represents an “outdated,” “inefficient” “consensus mechanism invented for paper money,” run by “intermediaries” who need to verify each… and every… transaction… step… by… step… along… the… way.

In so doing, the Fed is learning to slowly adapt to 21st century technology by weaponizing blockchain against its cryptocurrency competition.

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