Federal Reserve’s payment service FedNow would not replace cash

CLAIM: The Federal Reserve is launching a digital currency app,
FedNow, that will eliminate physical cash.

AP’S ASSESSMENT: False. The Federal
Reserve’s FedNow is a service that allows banks and credit unions to transfer
funds more quickly. It’s not a form of currency, nor is it a move towards
eliminating cash, the Board of Governors of the Federal Reserve System stated.

THE FACTS: FedNow is a service that has been in the works since 2019 and will launch in July 2023.

In recent days, social media users have misrepresented the
service, claiming it is a step towards “getting rid of physical money and having
digital currency.”

In response to the misinformation and confusion, the Federal
Reserve on Friday tweeted part of its FAQ section relating to the service, reiterating that
FedNow is not a form of currency, nor is it moving towards eliminating
cash.

Instead, it is a payments service that will be available to banks and credit unions, enabling them to speed up the processing of checks and electronic
payments. This will mean people can access their paychecks and transfer money
to other accounts instantly, any time of the day or week. Currently, these
processes can take up to three days to clear and are often delayed on holidays
and weekends.

“FedNow has nothing to do with replacing cash. It is an upgrade to
the decades old payment system,” said Aaron Klein, senior fellow in
economic studies at the Brookings Institution, in an
email to the AP. Klein noted that if banks use
the service, it will make payments faster, resulting in fewer overdraft fees,
late fees and visits to check cashers.

Many countries already have real-time payment systems similar to
FedNow, including England. The U.S. already has a real
time payment network, but it’s run by private banks.

The Fed is separately researching the potential
to issue a digital currency, commonly referred to as a “central bank digital
currency,” or CBDC. Yet that research is in its early phases and there isn’t
uniform support among Fed officials for issuing such a currency.

A central bank digital currency would potentially
allow Americans to make electronic transactions without relying on a third
party, such as a bank. But Fed Chair Jerome Powell has said that the Fed would
seek congressional authorization before taking such a step.

Last year, social media users spread similar
false claims about an executive order Biden signed in
March 2022, urging the Federal Reserve to consider whether the central bank
should create a CBDC. The order directed the Treasury Department and other federal agencies
to study the impact of cryptocurrency on financial stability and national
security.

“The Federal Reserve has made no decision on issuing a central
bank digital currency and would not do so without clear support from Congress
and the executive branch, ideally in the form of a specific authorizing law,”
the Federal Reserve’s website states. “A CBDC would not replace cash or other payment options.”

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This is part of AP’s effort to
address widely shared misinformation, including work with outside companies and
organizations to add factual context to misleading content that is circulating
online. Learn more about fact-checking at AP.