Christopher J Waller: Opening remarks - summer workshop on
money, banking, payments, and finance
Opening remarks by Mr Christopher J Waller, Member of the Board of Governors of the
Federal Reserve System, at the summer workshop on money, banking, payments and
finance, jointly organised by the Federal Reserve Board, the Bank of Canada, and the
Study Center Gerzensee, Washington DC, 19 August 2024.
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Thank you, Matt. I am delighted to welcome you all in person to the 2024 Summer
Workshop on Money, Banking, Payments, and Finance, jointly organized by the Federal
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Reserve Board, the Bank of Canada, and the Study Center Gerzensee. I want to thank
the organizers for putting together such an interesting program and also thank the
participants for their contributions.
The evolving nature of money and banking creates new channels through which
financial markets and institutions can affect the economy, with implications for all five of
the Federal Reserve's functions, which are monetary policy, financial stability,
supervision and regulation, payment systems, and consumers and communities.
Relatedly, the emergence of new technologies can generate complex economic
interactions, and theoretical research and analytical work are crucial to understanding
the implications.
Many of the concepts underlying such economic interactions have for years been the
study of this workshop. When I was research director at the Federal Reserve Bank of
St. Louis, I put together several iterations of this gathering. As the organization of the
workshop has passed to a new generation, I continue to find it to be a leading venue for
studying the economic mechanisms through which money, financial markets, contracts,
and institutions affect economic activity and economic welfare. Past participants have
advanced modern money and banking theory, bringing new insights to real-world
economic problems and policy analysis. Numerous research papers presented in these
workshops have been published in prestigious economics journals and influenced
scholarship in this area.
If I had to describe the work that has been presented at this conference over the last
20plus years, I would say it focuses on the economics of exchange and payment.
Walrasian supply and demand models describe how an equilibrium quantity and price
are determined but it is silent on two key questions: how do the goods get from seller to
buyer and how is payment made from buyer to seller? In short, standard supply and
demand analyses have nothing to say about the actual exchange process and how
payment is made-in a sense, exchange and payment are viewed as trivial issues. By
delving into the micro-foundations of exchange and payment, researchers in this area
were able to identify key frictions that make exchange and payment far from trivial.
This is not just a theoretical issue that is only relevant to economists in ivory towers.
Payments and the exchange process are multibillion-dollar businesses and private
sector firms are constantly innovating in this area to overcome the types of frictions that
are well-known to this group. The knowledge that I have gained from interacting with
researchers in this area for the last 20 years has aided me in one of my roles as a
Federal Reserve governor, supporting the Fed's oversight of the U.S. payment system.
It also guides my thinking about how to make global payments cheaper and faster,
which is a key objective adopted by the G20 countries in 2020 and is one fully
supported by the Federal Reserve.
Keeping with the tradition of studying exchange and payment, several papers to be
presented this year focus on how frictions in financial markets, such as asymmetric
information or asset illiquidity, matter for the transmission and implementation of
monetary policy as well as unemployment and inflation. Similarly, it is great to continue
seeing work studying frictional intermediation in asset markets and the implications for
asset prices and the efficient sharing of risk. These contributions push the frontier of our
knowledge, facilitate our understanding of real-world complexities, and inform policy
thinking.
The workshop's focus on broader financial stability issues is also very important.
Financial stability vulnerabilities, such as run risk, excessive leverage, and bubbly
valuations, could amplify the effect of adverse shocks, potentially resulting in big
economic losses and a slowdown in economic activity. Understanding the mechanisms
that allow these vulnerabilities to grow and transmit stress to the rest of the financial
system requires rigorous theoretical research and solid micro-foundations. Over the
course of this week, we will hear interesting work on this topic that includes research
questions such as how a central bank can balance interventions for financial stability
and interventions to achieve a certain stance of monetary policy, how banks take risks,
and understanding the risk of runs on banks, non-banks, and stablecoins.
Other concepts are newer and more novel. As the monetary and financial ecosystem
has evolved, so has this workshop, bringing together many perspectives and modeling
approaches to money and banking theory and its applications. One recurring theme has
been to pay special attention to micro-foundations and institutional details, which is
important to rigorously analyze and understand today's financial innovations and
evaluate their implications for welfare and policy.
This year's workshop continues in that innovative spirit, keeping an eye on the future of
money and banking. The papers to be presented span areas including decentralized
ledgers, exchanges for crypto assets, and the impact of certain protocols on financial
stability. Researching these new technologies helps us deepen our understanding of
the implications for the broader financial system.
An important point to remember this week is that no single field of study can give the
answers to all of the big questions we face relating to the evolution of money and
banking. Commingling of insights and techniques from monetary theory, finance theory,
and other fields is vital in studying the complex interactions of modern financial
systems. Of course, it is also important to test our theories with available data, and
many papers we will see this week deliver on that count as well.
Without further ado, let's get started. I hope you have a great week of engaging
discussions, and I'm sure we will learn a lot from this year's workshop.
The views expressed here are my own and are not necessarily those of my
colleagues on the Federal Reserve Board or the Federal Open Market Committee.