must apply a critical lens to understand whether changes to regulations or policies would be necessary to address specific concerns. some potential technology solutions assume — or for example, see project cedar, a technical experiment by the federal reserve bank of new york ’ s innovation center, which examined whether distributed ledger technology could be used to improve the efficiency of cross - border payments and settlements involving multiple currencies, at https : / / www. newyorkfed. org / aboutthefed / nyic / project - cedar. for example, see the bank for international settlements innovation hub project nexus proof - of - concept, which explores the interlinking of domestic faster payment systems, at https : / / www. bis. org / about / bisih / topics / fmis / nexus. htm. - 11 even require — policy change, such as issues related to operating hours and account access. in these cases, a new technology alone cannot solve the issue. some point to a decentralized infrastructure to support digital assets as a solution to address current frictions in cross - border payments, like speed and cost of payments. however, these perceived payment limitations do not always stem from problems with existing technology, but rather from existing policies, laws, and even consumer and business preferences. and within the international context, some changes may require greater alignment across jurisdictions. some purported payment limitations or frictions exist for specific reasons related to managing key risks that policymakers may not want to change, and it is important to understand the tradeoffs of these policy decisions. let ’ s use the example of compliance requirements that deter financial crimes and counter the financing of terrorism. these policies exist to accomplish specific policy goals and are implemented by banks that balance the need for transparency to deter crime and the protection of consumer financial information from government overreach. in these cases, the perceived barriers in existing payment systems are established for important public policy reasons and are not limitations resulting from the existing technology itself. it is important to not only thoroughly understand what technological innovations can do, but also what these innovations should be able to do within the broader context of a robust, well - functioning banking and payments system. my vision for responsible innovation requires that we continue to distinguish which specific payment frictions can benefit from technological innovation itself and - 12 which are questions of policy and exist for good reasons, as well as the recognition that we should not compromise vital public policies in the name of innovation. the importance of continued research the federal reserve remains open to multiple

reserve — frequently referred to as reserves. these reserves are held for a number of purposes, including settling large - value interbank payments. interbank payment services, like the fedwire funds service and other private sector services, are critical to the functioning and stability of the financial system, and the economy more broadly, as they enable important financial market functions. 5 wholesale payment infrastructures operated by the central bank tend to underpin domestic and international financial activities by serving as a foundation for payments and the broader financial system. this infrastructure allows payments to flow safely between consumers and businesses within the united states and internationally. since this infrastructure is so critical to the payments system, it is necessary that we investigate and understand the potential opportunities, risks, and tradeoffs for wholesale payments innovation to support a safe and efficient u. s. payment system. these wholesale systems fabio panetta, member of the executive board of the european central bank, has argued that wholesale cbdc has existed for decades. see fabio panetta, “ demystifying wholesale central bank digital currency ” ( speech at the deutsche bundesbank symposium on payments and securities settlement in europe, frankfurt, germany, september 26, 2022 ), https : / / www. ecb. europa. eu / press / key / date / 2022 / html / ecb. sp 220926 ~ 5f9b85685a. en. html. for additional discussion on wholesale cbdc versus reserves on a wholesale payment platform, see jon durfee, jesse leigh maniff, and priyanka slattery, “ examining cbdc and wholesale payments ” ( washington : board of governors of the federal reserve system, september 8, 2023 ), https : / / www. federalreserve. gov / econres / notes / feds - notes / examining - cbdc - and - wholesale - payments20230908. html. - 9function safely and efficiently today, but we have seen new payment platforms built on innovative technologies that have generated interest in new capabilities. this includes transacting “ tokenized ” forms of money and assets and enhancing the programmability of payments through the transfer of money using so - called smart contracts. these platforms are also being explored as a way to improve the efficiency of payment, clearing, and settlement of certain financial transactions, including for cross - border purposes. policymakers should be mindful of the specific features innovative wholesale platforms could include, and the risks, trade