30 Jun What should we know about this new digital currency coming in July?

Q. What do we need to know and/or do to prepare for this new digital currency in July?

— Curious

A. We’re not talking Bitcoin here.

You’re asking about CBDC, or Central Bank Digital Currency, a form of a government-issued currency.

It is issued by a central bank such as the U.S. Federal Reserve, said Jeanne Kane, a certified financial planner with JFL Total Wealth Management in Boonton.

She said the value is linked to the issuing country’s official currency, is state/government issued and operated.

This isn’t the same as cryptocurrencies, which are decentralized, she said.

The Federal Reserve Bank is preparing to launch FedNow in July.

Its goal is to “facilitate nationwide reach of instant payment services by financial institutions regardless of size or geographic location- around the clock, every day of the year.”

Access will be provided through the Federal Reserve’s FedLine network, which serves more than 10,000 financial institutions directly or through their agents, she said.

The U.S. isn’t the only country interested in creating CBDC

“As of March 1, 65 countries are in the advanced stage of development, and over twenty central banks have launched their pilots, including Brazil, Japan and Russia,” she said.

Kane said digital payments have been used in the U.S. for a long time.

“You’re using digital money today when you send funds electronically from your bank to pay a bill or send money to a friend’s bank,” she said. “CBDC would differ from this existing digital money because it would be a liability of the Federal Reserve and not a commercial bank.”

She said you’ll likely hear more about FedNow and FedLine if you do online or app transactions to pay for goods and services.

She said the positives include that it could lead to cheaper, faster, more secure transactions and give access to banking for those who don’t have it today. Digital transaction tracking could help detect and reduce fraud, she said.

There also could be downsides, she said.

Digital transaction tracking may raise privacy concerns, sue said, and it could lead to potential central bank regulation over types of transactions.

Then there’s the question of whether it could have negative impact on the banking industry if people choose CBDC instead of a traditional bank’s options, she said.

“For now, you can hold onto your cash. Dollars and cents aren’t going away. This is just another tool or expanded way to pay,” she said.

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This story was originally published on June 30, 2023.

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