Federal Reserve New Service For Faster Payments

16 Sep 2019 by svet

Today five people (three lawyers, one doctor of philosophy and one management consultant) presiding in the Federal Reserve Board published a statement on their site announcing the "plan to develop a new round-the-clock real-time payment and settlement service to support faster payments".

It reads: "Federal Reserve should develop a new service for faster payments, over 90 percent supported the Federal Reserve operating a round-the-clock real-time payment and settlement service alongside services provided by the private sector." and "The Board anticipates the FedNow Service will be available in 2023 or 2024." Are we really facing the perspective of rising state-sponsored competition to cryptocurrencies?

So-called "electronic" (or "wire") money transfers are effected by banks in roughly four steps:

1) a user gives a transfer order (on or off-line), which requires preliminary user's identification as well as its credentials and balance checks. Additionally, for larger sums (usually >$10k) and depending on destination (specially, for international transfers where some countries are under heavier scrutiny) banks controllers have to approve this transfer manually;

2) IBAN and BIC codes are assigned and a message through a parallel system (SWIFT or Fedwire) is transmitted to a receiving bank (or more often, for international payments, its correspondent), requesting that it executes a payment according to the enclosed instructions; 3) a receiving bank proceeds through all verifications of the step one now in its own system. If something doesn't check it returns a no reply to the sending bank. Transaction is stopped and bank notifies its client and waits for further instructions from him / her;

4) If everything checks in both banks and their intermediaries, the actual transfer is made (it, usually, involves some form of settlement) within several days. User's destination account is debited and banks further proceed with internal calculations of fees / balances. All of the above, of course, requires that all involved parties have bank's accounts and both banks have correspondent accounts with each other (most often through intermediaries).

This system has been crafted stage by stage during roughly past 50-60 years and, in a process, was painfully tailored to all SWIFT countries national restrictions and financial regulations.

Today we have five people with background in "social and political sciences" wishing to change this global, interconnected, over-complicated system in about five-six years from within the country, which is currently on political and economic odds with almost all of the world.

Conclusion: if anybody (I'm sure no one from this group, however) consider to invest (emotionally, of course) in this FRB's venture I need to remind to him /her SEC's rules number 10 and 7 from "10 Investment Tips for 2019", correspondingly: "Events around the world may have a material impact on your investments." and "Affinity frauds target members of identifiable groups, such as the elderly, religious, or ethnic communities, or the military."