Morning Briefing | The FedNow Revolution: A New Digital Era

Apple shares hit new record high. Apple (AAPL) shares surged to an all-time high of $183.79 on Monday, marking the stock's first closing high since January 2022. This brings its year-to-date gain to more than 41%, outperforming the Nasdaq 100 Index's 35% gain. Investors see the stock as a "safe haven" thanks to Apple's recent successful unveiling of its Vision Pro mixed-reality headset as well as its strong balance sheet and robust revenue streams. Investors also remain optimistic about Apple's expansion and revitalization plans for its retail chain.

EU threatens to break up Google's ad business. European Union antitrust regulators are reportedly pursuing a breakup of Google's advertising-technology business as part of a new antitrust complaint. The European Commission is expected to file a formal complaint against Google, alleging that the company abuses its dominant position in the digital ads market. Specifically, Google is accused of exploiting its role as a major broker, supplier, and online auctioneer of digital ads on third-party websites and apps. To reduce the company's grip on the digital-advertising industry, EU officials are contemplating ordering Google to divest certain components of its ad-tech business.

Netflix enters the sporting arena. Netflix (NFLX) is in talks to livestream its first sporting event this fall. The event will be a celebrity golf tournament with professional golfers and Formula One drivers. Set to take place in Las Vegas, the tournament would showcase celebrities from Netflix's docuseries "Drive to Survive" and "Full Swing." Netflix's move into livestreaming sports has been debated among executives for more than a year. And while discussions are still in the early stages, this could be a new opportunity for Netflix's advertising business. Other major streaming companies have used sports-rights packages to attract new subscribers and boost advertising revenue.

Fed looks to CPI for support. Federal Reserve officials aiming to pause their rate-tightening campaign this week may receive support from today's Consumer Price Index ("CPI") data. The CPI report, set to be released at 8:30 a.m. Eastern time, is predicted to show that falling energy prices in May offset increases in other categories – resulting in a relatively unchanged headline reading. This is likely to discourage the Federal Open Market Committee from implementing an 11th consecutive increase in its benchmark interest rate.

U.S. gives pass to chipmakers. The Biden administration will allow leading semiconductor manufacturers from South Korea and Taiwan to continue and expand their chipmaking operations in China without facing reprisals from the U.S. This has raised concerns among analysts who argue that it could undermine U.S. export controls aimed at impeding China's technological advancements. Alan Estevez, undersecretary for the Commerce Department's Bureau of Industry and Security, revealed the administration's plan during an industry event. Estevez said they intend to extend existing exemptions from U.S. export-control policies that restrict the sale of chips and chipmaking equipment to China.

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Mailbag | The FedNow Revolution: A New Digital Era

Today in Stansberry NewsWire, we're sharing our weekly "mailbag."

In it, we include responses from our readers submitted by noon the prior Friday. Remember, you can...

• Respond to or ask questions about something we've written,

• Ask us to cover a topic you find interesting, and

• Share your thoughts on what's most important to you when it comes to financial news.

As always, please submit all thoughts, questions, and commentary to new@stansberryresearch.com for your chance to be featured in next week's mailbag.

This week, we're highlighting a question from Hui C...

You may have already heard about switching U.S. Dollar to Fed Coin. Do you have any idea when it is going to happen? Is [the] bank going to be killed? What about the money you have now in the bank? Is it going to be converted one paper dollar for one dollar [of] USD Coin? Or will [the] dollar actually be devalued?

Kevin's Response

Hui's question is one that I have probably been asked about the most over the last several months.

And for good reason...

The Federal Reserve's FedNow program and potential digital currency called FedCoin have captured the attention of economists, policymakers, and general investors alike.

In 2023, it's nearly impossible to ignore the emergence of new technology... especially one that's perceived to threaten the privacy of consumers and empower larger institutions like the federal government.

Some would say that artificial intelligence is enough to worry about, let alone a centralized digital financial system...

But in a world that's becoming increasingly digitized, it comes as no surprise that the financial sector is also undergoing a significant transformation.

These initiatives have the potential to revolutionize the way we perceive and engage money.

So in this article, we'll explore the key aspects and important distinctions between the FedNow program and FedCoin while discussing their implications for the future of finance.

FedNow is the first government-created and backed real-time payment portal that allows banks to send and receive funds instantly. Think of it as the government version of the already established privately made systems like Venmo and Cash App.

The introduction of the FedNow Service, scheduled for July of this year, has the potential to bring about monumental impacts on the U.S. payment landscape.

The FedNow service is designed to enable instant payments with a brand-new infrastructure that leverages speed, data, and communication to facilitate transactions within a matter of seconds.

The new service will allow consumers to make instant payments on their mortgage or auto loan within seconds. Previously, consumers would have to ensure that an automatic payment was scheduled days in advance to confirm it cleared by the due date.

The introduction of FedNow seeks to eliminate this delay, allowing for instant and secure transactions between individuals and businesses.

Imagine a future where you can send money to a friend or pay for a purchase, and the recipient instantly receives the funds. The FedNow program aims to make this a reality.

If this sounds familiar, you wouldn't be wrong... There's a similar system already in place today known as the real-time payments network – a private service launched in 2017.

You might even already use this type of service if you have used Zelle's services through your own financial institution. (Zelle is the only application-based processor in this network and is a common provider of this service for many banks today.)

This instant payment system will provide numerous benefits...

It will enhance financial inclusivity by ensuring that individuals and businesses of all sizes have access to faster payments. It will also reduce the risks associated with delayed payments and improve the overall efficiency of the economy.

But what it won't do is replace cash...

The introduction of a federally created digital currency – like the Central Bank Digital Currency ("CBDC") – could potentially disrupt the exiting dollar landscape.

According to the Federal Reserve, a CBDC is a digital form of central bank money that's widely available to the public.

In the United States, there are currently two types of central bank money: physical currency issued by the Federal Reserve and digital balances held by commercial banks at the Federal Reserve.

While Americans have long held money predominantly in digital form – in bank accounts, payment apps, or through online transactions – a CBDC would differ from existing digital money available to the public. That's because a CBDC would be a liability of the Federal Reserve, not of a commercial bank.

Now while there's a lot of speculation about the introduction of a digital currency, there has been no official announcement by the Fed about the adoption of one.

The central bank has even stated that it would "only proceed with the issuance of a CBDC with an authorizing law."

The potential relationship between a new CBDC and the existing U.S. dollar is still a very highly debated topic. But according to the Fed, a CBDC would not be intended to replace or reduce the use of paper currency.

The potential benefits of a CBDC like FedCoin are multifaceted. Firstly, it could improve the speed and efficiency of transactions, similar to the goals of the FedNow program.

FedCoin could enable instant peer-to-peer transactions, which would remove the need for intermediaries and reduce transaction costs. Furthermore, a CBDC could promote financial inclusion by providing banking services to those who are currently unbanked or underbanked. It would provide a secure and accessible means for individuals to store and transfer value digitally.

However, with every technological advancement comes sizable risks...

While the FedNow program and the potential introduction of FedCoin hold promise, there are important considerations to address. Privacy and security are paramount when dealing with financial transactions.

With a digital currency, there are concerns regarding the collection and potential misuse of personal data by the federal government. Striking the right balance between privacy and transparency will be crucial for the success and public acceptance of such initiatives. It's essential to ensure that individuals' financial information remains confidential and protected from cyber threats abroad and abuse of power from the federal government.

As we look toward the future, it's clear that the financial landscape is evolving. The FedNow program and the potential introduction of FedCoin represent significant steps toward an era of digital currency. These initiatives have the potential to revolutionize the way we transact, making payments faster, more inclusive, and more secure.

However, it's important to recognize that the transition to a fully digital financial system won't happen overnight.

There are complex economic, technological, and regulatory challenges that need to be addressed. As we navigate this digital revolution, it's essential to prioritize privacy and security while fostering a sense of collaboration. This will help ensure the successful implementation and adoption of these groundbreaking initiatives.

Let me know your thoughts... Would you use a new Fed Coin if/when it came out? 

Thanks again for the question, Hui C.

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Until tomorrow, 

Kevin Sanford, MBA
June 13, 2023