Fact check: FedNow makes payments faster, does not replace dollar

An April 2 YouTube video is titled, "In less than 24 Hours the US dollar changes FOREVER."

"Tomorrow, the first week of April, the Federal Reserve begins the rollout of their new central bank digital U.S. dollar," a narrator says. "That's right: it's called the FedNow program and it's going to replace your paper currency – not overnight, but it's moving in that direction."

The video was watched more than 5 million times in three days. It was also shared more than 20,000 times on Facebook, according to CrowdTangle, a social media analytics tool.

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FedNow is a payment infrastructure created to enable instant payments. It is not a retail central bank digital currency, which the Federal Reserve says it could only create if a new law authorized it.

FedNow is designed to enable participating financial institutions to provide secure, instant payment services for individuals and businesses, according to the Fed. A spokesperson for the agency said the service has nothing to do with the creation of a digital currency.

On April 3, the date the video's narrator said the service would launch, the Fed began formally certifying participating institutions that will be able to use FedNow once it actually launches in July.

"Immediate availability of funds could be especially important for households managing their finances paycheck to paycheck or small businesses with cash flow constraints," Lael Brainard, then vice chair of the Federal Reserve Board, said in an Aug. 29, 2022, speech about FedNow. "Having the capacity to manage money in real time could help households avoid costly late payment fees or free up working capital for small businesses to finance growth."

FedNow doesn't replace physical dollars. It provides the backbone for instant payment services that will look very similar to services such as Venmo or Zelle, said David Sacco, a practitioner in residence at the Pompea College of Business at the University of New Haven.

"They are trying to take the time lag out of the banking system," Sacco said. "In a sense, we already use digital dollars since there aren't bills or gold sitting in your bank for every dollar there. But that's not a bridge we are crossing with this. That change happened a long time ago. And this doesn't create a new kind of money."

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A central bank digital currency is virtual money backed and issued by a central bank, according to the Atlantic Council. The think tank counts the U.S. among 114 countries exploring the creation of a central bank digital currency.

President Joe Biden signed an executive order March 9, 2022, to promote the creation of digital assets, but since November the Fed has not announced steps beyond studying the technical feasibility, benefits and downsides of a central bank digital currency.

At a March 8 hearing of the House Financial Services Committee, Fed Chairman Jerome Powell said the Fed could not launch a retail digital currency without a law authorizing one.

USA TODAY reached out to the video's creator for comment.

Lead Stories has also debunked this claim.

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Our fact-check work is supported in part by a grant from Facebook.