this very important law will ultimately bring about fundamental changes to the check - collection system, because it facilitates the adoption of check truncation and electronic collection of checks through the action of market forces. i would note, however, that even before check 21 became law, one out of every five checks collected through the federal reserve banks was being presented electronically. check 21 contains consumer protection provisions that differ from those provided under electronic check conversion. but the substantive rights of consumers are very similar whether they are derived from check or electronic fund transfer law. to date, little has changed within our national check collection system since check 21 came into effect a little more than six months ago. however, as banks make the investments necessary to take advantage of check 21 and modify their operations to make the best use of the new technologies, the acceptance of digital check images for presentment and return of checks will accelerate. and costly substitute checks, though they are critical to the change allowed by check 21, will eventually be looked back on as a transitional vehicle that helped achieve greater electronification of payments. overall, a more electronic payments system will benefit society and will help improve payments system efficiency. the need for physical transportation of paper checks will decrease. with more channels for processing payments, the payments system infrastructure will become more diverse and more resilient. at the same time, however, the payments industry will have to rely more heavily on key telecommunications networks and computing systems. mitigating the risk associated with greater reliance on electronic processing is vital and should be a top priority for the payments industry. there are other challenges arising from the ongoing transition to a more electronic system. many payments providers are trying to determine how best to manage investments in paper check processing as check volumes decline. many are also trying to decide what, if any, investments to make to take advantage of the authority provided by check 21 to convert checks to electronic funds transfers. changes within the payments system are also presenting challenges to the federal reserve system. since 1999, the number of checks collected through the reserve banks has fallen nearly 20 percent, and the pace of decline is accelerating. the reserve banks have undertaken a range of cost - reduction initiatives to keep pace with the declining volumes, including an ongoing realignment of their check collection operations. among their restructuring efforts is a reduction of the number of offices at which checks are processed from forty - five as of 2003 to twenty - three by early 2006. as the check market continues to shrink beyond 2006, the number of check processing centers

such historic change. fundamental structural economic change invariably produces economic victims. the temptation for governments to interfere excessively with the free market is therefore particularly acute during periods when dramatic change occurs. paradoxically, it is precisely then that the forces of the “ invisible hand ” are most needed to help bring about the welfare that can ultimately help absorb the negative externalities of change. if i am right that we are currently traversing such a period of historic change, it is more important than ever to ensure that government intervention in markets is limited and remains subject to continuous checks. free markets under the rule of law, ladies and gentlemen, provide the optimal path to welfare creation and ultimately responsible behaviour by market participants. as the history of the industrial revolution which began shortly after adam smith ’ s death demonstrates compellingly, there will always be people who endure great difficulties when rapid economic change occurs. chairman greenspan has recently noted that “ a significant minority, trapped on the adverse cycle of the market ’ s process of creative destruction, are suffering. this is an issue that needs to be more fully addressed if globalization is to sustain the public support it requires to make further progress. ” perhaps this will indeed be one of the major challenges we will face in the years to come. dealing with it by way of relentless government interference with the forces of the free market will at best fail to produce desirable results. at worst, it will begin to reverse the dramatic welfare gains we have enjoyed since the time of adam smith.