FedNow Goes Live In July. Is A CBDC Next?

FedNow Goes Live In July. Is A CBDC Next?

The Fed’s FedNow payment network goes live next month. FedNow lays the groundwork for a Central Bank Digital Currency (CBDC).

FedNow – a CBDC Trojan Horse? It will be interesting to see if any of the large banks opt-in to FedNow. The reason I say this is because if the Fed was to roll out a CBDC currency tomorrow, it would be competing with all banks, large and small. If I’m JPM CEO Jamie Dimon, I don’t want to compete with the Fed for deposits and loans.

Unless… Unless perhaps the Fed has promised to push as many banks into Mr. Dimon’s arms as possible. Thus far Fed Chair Powell has pushed First Republic Bank into JPM’s arms at favorable terms to JPM. Should the Fed actually do what it says it will do and maintain rates throughout 2024, there will be many more bank failures and bank combinations – food for JPM.

As the number of banks plummet, so grows JPM’s influence over the banking industry (the Fed’s influence will grow as well). The number of FDIC banks has significantly dropped since 1988 through a combination of bank failures and M&A, the catalyst for which was ever lower interest rates and poor risk management. The Fed too will have fewer commercial competitors when it gets around to issuing its CBDC.

Before long the Fed may have the banking industry down to half a dozen large banks that will control 95% of all deposits and loans with JPM at the top of the heap. The only other player of note will be the Federal Reserve with its digital currency.

  • Need Government assistance? You will accept that financial assistance in the form of the Fed’s CBDC which will be stored at the Fed.
  • I am not a fan of a CBDC given the loss of privacy. Further, should the U.S. ever want to implement a social credit score program as China has for years, a CBDC is the enabling technology that would underpin a Federal Government-backed social credit scoring system.

The Fed will never fail, until of course it prints itself into oblivion. At that time the Fed’s digital Dollar will be worthless.

Source: FDIC; TEK2day
Fed Funds Effective Rate: https://fred.stlouisfed.org/graph/?g=16zRK