are confident that we have all the tools necessary to withdraw monetary stimulus in a timely and effective way. 6 indeed, our balance sheet is already beginning to adjust, because improving financial conditions are leading to substantially reduced use of our lending facilities. the balance sheet will also shrink over time as the mortgage - backed securities and other assets we hold mature or are prepaid. however, even if our balance sheet stays large for a while, we will be able to raise our target short - term interest rate – which is the rate at which banks lend to each other overnight – and thus tighten financial conditions appropriately. operationally, an important tool for adjusting the stance of monetary policy will be the authority, granted to us by the congress last year, to pay banks interest on balances they hold at the federal reserve. when the time comes to raise short - term interest rates and thereby tighten policy, we can do so by raising the rate that we offer banks on their balances with us. banks will be unwilling to make overnight loans to each other at a rate lower than the rate that they can earn risk - free from the fed, and so the interest rate we pay on banks ’ balances will tend to set a floor below our target overnight loan rate and other short - term interest rates. additional upward pressure on short - term interest rates can be achieved by measures to reduce the supply of funds that banks have available to lend to each other. we have a number of tools to accomplish this. for example, through the use of a short - term funding method known as reverse repurchase agreements, we can act directly to reduce the quantity of reserves held by the banking system. by paying a slightly higher rate of interest, we could induce banks to lock up their balances in longer - term accounts with us, making those balances unavailable for lending in the overnight market. and, if necessary, we always have the option of reducing the size of our balance sheet by selling some of our securities holdings on the open market. as always, the most difficult challenge for the federal open market committee will not be devising the technical means of unwinding monetary stimulus. rather, it will be the challenge that faces central banks in every economic recovery, which is correctly judging the best time to tighten policy. because monetary policy affects the economy with a lag, we will need to base our decision on our best forecast of how the economy will develop. as i said a few moments ago, we currently expect inflation to remain

build a strong foundation with the introduction of the fednowsm service, a new instant payments infrastructure that is scheduled to go into production in two years. the fednow service will enable banks of every size and in every community across america to provide safe and efficient instant payment services around the clock, every day of the year. through the banks using the service, consumers and businesses will be able to send and receive payments conveniently, such as on a mobile device, and recipients will have full access to funds immediately. promote competition and diversity and lower transactions costs today, the costs of certain retail payments transactions are high and not always transparent to end users. 7 competition among a diversity of payment providers and payment marie - helene felt, fumiko hayashi, joanna stavins, and angelika welte, distributional effects of payment card pricing and merchant cost pass - through in the united states and canada, federal reserve bank of boston research department working papers no. 20 - 13 ( boston : frb boston, 2020 ), https : / / www. bostonfed. org / publications / research - department - working - paper / 2020 / distributional - effects - paymentcard - pricing - merchant - cost - pass - through - united - states - canada. aspx. - 6types has the potential to increase the choices available to businesses and consumers, reduce transactions costs, and foster innovation in end - user services, although it could also contribute to fragmentation of the current payments system. by providing access to a digital form of safe central bank money, a cbdc could provide an important foundation on which private - sector competition could flourish. reduce cross - border frictions cross - border payments, such as remittances, represent one of the most compelling use cases for digital currencies. the intermediation chains for cross - border payments are notoriously long, complex, costly, and opaque. digitalization, along with a reduction in the number of intermediaries, holds considerable promise to reduce the cost, opacity, and time required for cross - border payments. while the introduction of cbdcs may be part of the solution, international collaboration on standard setting and protections against illicit activity will be required in order to achieve material improvements in cost, timeliness, and transparency. 8 we are collaborating with international colleagues through the bank for international settlements, committee on payments and market infrastructures, and the g7 to ensure the u. s. stays abreast of