about the proper instruments and institutions to support a sound national monetary system. a very large infrastructure for handling these paper instruments has been developed and maintained by the private and public sectors. in the case of checks, for example, this infrastructure includes offices, equipment, and staff for rapidly processing, shipping, and presenting checks throughout the country, literally overnight. the foundation of much of the current payments system infrastructure was laid in the 1960s. at that time, a paperwork crisis was overwhelming the financial markets, as the rapid growth in financial activity outpaced the system's ability to clear and settle financial transactions and payments using traditional, manual processes. the response of both the financial industry and government was twofold. automation was applied to paper - based clearing activities. in addition, new electronic systems for creating transactions and making payments were established where this seemed practical. in the payments arena, the ach and bank credit card systems and the beginnings of debit card systems date from this era. reacting to these developments and new systems, commentators of the time predicted the advent of the " cashless " and " checkless " society. we know the history of these predictions. in reality, the 1970s saw a burst of creativity in the establishment of electronic payments systems but a relatively slow rate of adoption by consumers and businesses. more recently, the 1990s saw a new burst of creativity, including ideas for creating products called " electronic cash " and " electronic checks, " adapting existing forms of payment to the internet, and experimenting with entirely new payments systems. work also began on projects to convert checks to ach or other electronic payments, at the point of sale or at lockboxes, to reduce the costs of processing and to speed the collection of funds. some of the results of these experiments are now gaining increasing acceptance in the marketplace. many more have not succeeded. many lessons have been learned from these experiences, and i am sure you will be discussing them during the next two days. it would be easy to dismiss the experiments and predictions from the 1990s about change in the payments system as hyperbole reminiscent of the 1970s. i believe, however, that the situations today and in the 1970s are very different. first, although data on the use of cash in transactions is notoriously poor, the nominal value of per capita holdings of small - denomination bank notes - - those used heavily in domestic commerce - - is now growing very slowly, and the inflation - adjusted per capita value has recently declined somewhat. more important for this audience

variety of accounting and other information that supports a transaction or relationship. the complexity of this situation has created challenges for businesses as they integrate corporate information systems with electronic payment capabilities, and this complexity has likely slowed the adoption of electronic payments for a wide range of business purposes. i hope this conference will help underscore the need for businesses, financial institutions, technology vendors, and payments system operators to find common approaches and standards for addressing this issue. turning to questions of infrastructure, i particularly encourage you to discuss ideas for the future design of the core u. s. electronic payments systems, including those of the federal reserve. some of the current designs date back several decades, and significant changes have taken place in both technologies and business needs since that time. the markets will undoubtedly shape the use of payments systems. however, there are only a handful of core systems and it is very important that these systems be well designed so that they do not block market innovation. i am particularly pleased that the payments system development committee has over time focused on barriers to such innovation. the overall payments system is built on complex rules, business practices, and technologies. change can often be difficult. in this situation, structures built up in the past can become barriers to the implementation of new ideas. where barriers do exist, it is important to address them and, when appropriate, remove them, so that the market can provide us with new and useful payment and financial products and services. from a broad perspective, the check 21 act continues the work of our society to ensure that the marketplace can respond flexibly to fundamental shifts in our technologies. the act - - appropriately - does not mandate that checks be truncated and turned into electronic payments, nor does it mandate that all payments be made electronically. instead, it strengthens a market - based approach to innovation in the check - collection system. the act allows depository institutions to take digital images of checks and truncate the original check, provided that they, or a subsequent institution, are also willing to create a substitute paper check if one is demanded, and to bear the liability for doing so. the act essentially removes an important barrier to innovation and frees depository institutions to apply new technologies and market - based ideas to traditional check - clearing activities. safety and confidence. safety and confidence are the other basic public - policy objectives for payments systems. sound designs, rules, and risk - management practices promote the safety of payments for users and their financial institutions. central banks have an ongoing interest in