Michael S Barr: Opening remarks - Economics of Payments XII
Conference
Opening remarks by Mr Michael S Barr, Vice Chair for Supervision of the Board of
Governors of the Federal Reserve System, at the Economics of Payments XII
Conference, Federal Reserve Board, Washington DC, 27 October 2023.
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I am grateful for the opportunity to speak with you today, at a time of great change, and
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great promise, for the payments system. The Federal Reserve plays multiple roles in
the payments system, including as a supervisor of banks and financial market utilities
and as an operator of some key components of payments infrastructure. The research
done by experts, including those in this room, is vital in helping us understand what
works well in the payments system and what can be done to improve it.
We introduced the FedNow Service® in July to facilitate secure and convenient instant
payments. We developed FedNow in response to a growing demand for instant
payments from both households and businesses. A hundred years ago, the Fed
facilitated payments by moving checks across the country by train. FedNow represents
new "rails" by which payments can keep pace with today's businesses and consumers.
The Federal Reserve has now made these rails available; banks can build on this
infrastructure to provide better service for households and businesses.
It is hard to speak about payments innovation without mentioning the increased
experimentation with new payments technologies, such as stablecoins and central bank
digital currencies (CBDCs) happening in the private and public sectors, both in the
United States and elsewhere. As this work proceeds, we must carefully weigh the
benefits and risks of different uses of these new technologies.
Stablecoins, as I have said in other remarks, need to be regulated. When an asset is
pegged to a government-issued currency, it is a form of private money. When that asset
is also used as a means of payment and a store of value, it borrows the trust of the
central bank. So, the Federal Reserve has a strong interest in ensuring that any
stablecoin offerings operate within an appropriate federal prudential oversight
framework, so they do not threaten financial stability or payments system integrity. We
also have provided guidance to the banks that we supervise on how they should
engage with their supervisors when considering use of these products.
In terms of CBDCs, we continue to speak to a broad range of stakeholders and conduct
basic research in emerging technologies that might support a CBDC payments
backbone, or for other purposes in the existing payments system. The research is
currently focused on end-to-end system architecture, such as how ledgers that record
ownership of and transactions in digital assets are maintained, secured, and verified, as
well as tokenization and custody models. This work helps us consider how we could
design a digital analog to the paper bank note that permits a transfer of value between
two parties without direct facilitation by the issuing central bank.
It is important to note, however, that while the Federal Reserve supports further
research and continued engagement with a broad range of stakeholders, the Fed has
made no decision on issuing a CBDC and, as Chair Powell has emphasized, would only
proceed with clear support from the executive branch and authorizing legislation from
Congress. With this in mind, learning from both domestic and international
experimentation can aid decisionmakers in understanding how we can best support
responsible innovation that safeguards the safety and efficiency of the U.S. payments
system. We'll hear more about the results from some of these domestic and
international initiatives on CBDCs later today.
International collaboration and coordination are often essential in payments systems, as
we heard in Jon Cunliffe's keynote yesterday. In 2020, the G20 governments endorsed
a roadmap for enhancing cross-border payments, aimed at making them faster,
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cheaper, more transparent, and more accessible globally. The Federal Reserve
supports and continues to work with the international community on these issues, and I
look forward to our ongoing engagement with stakeholders, both public and private, on
the path forward.
Closer to home, traditional payment methods are still the backbone of the U.S.
payments system, despite the surge in interest in emerging payment technologies. It is
important to advance research in both new and older payment methods. Questions on
the use of cash and the dynamics among the players in the debit card industry remain
worthy of investigation, as is evident in the conference agenda.
Earlier this week the Board proposed revisions to the interchange fee cap for debit card
issuers, as required by law. Public input is a key element of the rulemaking process for
the Federal Reserve, and I look forward to reviewing the comments that we will receive
on the proposed revisions. I also appreciate the opportunity for Federal Reserve staff to
engage with the broader scholarly community on this and other topics, as research is
an important component for our consideration of regulatory actions. Engagement with
researchers, stakeholders, and the public will help the Federal Reserve continue to
support a safe and efficient payments system, which has been part of our mission since
the Fed's establishment in 1913.
Finally, whether we talk about traditional or emerging payment technologies, in the
public or private sector, innovation must proceed in a way that respects fundamental
principles for serving the public good. Payments innovation should support and promote
broad access and financial inclusion. Financial inclusion is affected by many factors, but
too often the cost of a payment service is prohibitive and represents a barrier that limits
access for low- and moderate-income households and small businesses. I am pleased
to see that so many of the topics covered in this conference touch on factors that affect
financial inclusion: issues of cost, trust, privacy, and security, among others.
In conclusion, I want to thank the organizers for putting together this forum and I look
forward to further engagement. Thank you all for being here and giving us the
opportunity to learn more about your research.
The views expressed here are my own and not necessarily those of my colleagues on
the Federal Open Market Committee or the Federal Reserve Board.
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https://www.fsb.org/2020/10/enhancing-cross-border-payments-stage-3-roadmap/