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In the ever-changing world of technology, the Government has continued to implement new concepts for currency and banking 

Supporters of the digital dollar, also known as a CBDC (Central Bank Digital Currency), believe it could make banking services more affordable, easier, and faster for everyone. It’s like a modern twist on how we handle money. 
However, not everyone is on board. Some people are concerned that a digital dollar and the FedNow program, a payment-processing tool, could compromise our privacy and give the federal government too much control. As we navigate this digital age, it’s essential to weigh the pros and cons to ensure that any changes benefit us all. 

What is a Digital Dollar?

These CBDCs, might remind you of cryptocurrencies like Bitcoin. But here’s the catch: while Bitcoin operates on a decentralized network with thousands of participants, CBDCs are centralized. They are managed by governments, Federal Reserve and central banks, adding a layer of control to ensure stability. 

What is FedNow?

During the summer, the Federal Reserve introduced FedNow, an advanced digital payments system designed to streamline and enhance various financial activities. The primary objective of the FedNow system is to facilitate cost-effective processes for bill payments, money transfers, paychecks, government disbursements, and other consumer transactions. 

The concept of real-time payments may already be familiar if you have utilized services such as Venmo, Cash App, and Zelle. These popular payment-processing applications remain relevant, but with the integration of FedNow by participating banks, individuals gain an additional avenue for executing nearly instantaneous financial transactions. This innovative system presents an enhanced option within the evolving landscape of digital financial services.

How Do they Work?

In the present day U.S. financial landscape, individuals typically access their funds through banks, each employing its distinct system to monitor payments and deposits. Consequently, transactions spanning multiple banks may encounter delays of one to three working days, necessitating actions from intermediary banks to ensure accurate completion.

The introduction of a digital dollar could usher in a unified payment and deposit tracking system, overseen by the Federal Reserve or another government entity. It’s crucial to note that the central bank has not definitively committed to establishing a Central Bank Digital Currency (CBDC), leaving the final structure of a digital dollar system an open question. 

 For those affiliated with financial institutions participating in the FedNow program, a transformative shift awaits. The program enables instantaneous, round-the-clock money transfers 24 hours a day, 7 days a week. This real-time capability stands as a notable advancement over the existing Automated Clearing House (ACH) network, the prevailing standard for electronic fund transfers, which typically takes up to three business days to conclude a transaction. The FedNow initiative thus represents a significant enhancement in the efficiency and speed of digital financial transactions.

The Downsides 

Critics of a digital dollar express concern about the potential concentration of power within the U.S. government. They argue that it might grant the Federal Reserve excessive control over how Americans manage their finances, enabling the government to impose restrictions on fund access, apply negative interest rates to cash, automatically collect taxes, or even eliminate physical currency altogether. Additionally, the government could exercise surveillance over digital transactions, compiling data on individuals’ financial activities.

Adam Jordan, the Director of Investments for Paul R. Ried Financial Group, points out that Central Bank Digital Currencies inherently possess elements that governments historically find attractive, particularly in terms of tracking and control.

While the introduction of FedNow may equip smaller banks with the technological capabilities to compete with larger counterparts, it could potentially impact the revenue streams of all financial institutions. This is because consumers and businesses might prefer using the new payment system over credit and debit cards, leading to a reduction in interchange fees paid to banks and credit unions by merchants.

A report suggests that the implementation of FedNow might diminish the revenues of payments firms and banks relying heavily on debit and credit card interchange fees. Furthermore, banks stand to lose the interest earned on the “float,” which represents the money earned during the period it takes for a bank to process a deposit or withdrawal.

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As we move to this era of digital currency, re-evaluating your current portfolios and integrating other forms of assets can diversify your wealth. Precious metals are not effected by current technological shifts and has historically shown to be a hedge against inflation. At Reagan Gold Group, you can speak with a commodities specialist about physical gold or silver, or a gold or silver backed IRA, to hedge your portfolio. Book a FREE consultation to get started. Contact Reagan Gold Group today and find out more about precious metal investments. When it comes to your assets, there’s no better time than the present to take action. 

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