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People Confuse FedNow with digital dollar. Why that’s a problem

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American Banker – by Jackie Stewart

People Confuse FedNow with digital dollar. Why that’s a problem

This confusion about the two distinct initiatives creates a burden on the financial sector that goes beyond the complexity of managing traditional automation.

"I've heard a fair number of customers calling FedNow by its name," said Scott Anchin, vice president of senior operational risk and payments policy for the Independent Community Bankers of America. "That's very different when these other payment rails are discussed and they go unnamed. I think it's very interesting that FedNow has reached that level of name recognition. But I think as a result of that, it has become increasingly important for banks to educate their customers on what it is and what it isn't."

NBC News, for example, posted a 44-second video on YouTube titled "Debunking '#FedNow' and '#digitaldollar' conspiracies." The post uses a clip of Florida Gov. Ron DeSantis warning that the Federal Reserve would use a digital dollar to control everyday purchases. It also describes FedNow as "basically an update that's meant to move money from bank to bank as fast as Venmo does."

The Federal Reserve's website shows the result of these misunderstandings. "Is the FedNow service replacing cash? Is it a central bank digital currency?" one frequently asked question section on its website asks. The response: "No. The FedNow service is not related to a digital currency."

There is a lot of information — and misinformation — about the real-time payments system, FedNow, and how it differs from a central bank digital currency, which is a digital form of a country's currency. Experts said that the interest from the general public in both of these concepts is unusual since how payment rails work can be highly technical and many consumers are generally unconcerned with how their money moves from point to point as long as it arrives.

That interest can be beneficial, but also potentially harmful to the banking industry if the information that consumers have is wrong.

There are likely a few reasons that the everyday consumer has confused FedNow and a CBDC, or digital dollar. The Federal Reserve has spearheaded both, and these two technological developments have been discussed in close proximity to each other. FedNow launched in July after being in the works for several years. And although a CBDC is only being considered right now in theory, at least in the U.S., the Federal Reserve released earlier this year a summary of public comments on a paper from January 2022 titled "Money and Payments: The U.S. Dollar in the Age of Digital Transformation."

Americans' resistance to a CBDC fits with the nation's overall distrust of centralized economic and political power, experts said. Alex Jimenez, a managing partner in financial consulting at engineering and technology company EPAM Systems, pointed to the U.S.'s refusal to adopt a national identity card as analogous to the country's resistance to a digital dollar given the fear that the federal government could use the technology to track and control purchases.

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