speech considerations on the road ahead for monetary policy implementation june 02, 2022 lorie k. logan, executive vice president remarks at the new york fed and columbia sipa monetary policy implementation workshop, new york city as prepared for delivery good afternoon. it is a pleasure to speak with you today at the new york fed and columbia sipa workshop on monetary policy implementation. many of you have attended these workshops in the past, and it is great to be together again to talk about issues of essential importance to policy implementation. it is also nice to see so many new participants, reflecting the broad interest and engagement in the topic of digital innovation. over the past two days, we heard about faster forms of payments and new, digital forms of money — both private and public — and the effects they might have on money markets, policy implementation frameworks, and the international landscape. digital innovation in money and payments is occurring for a reason — consumers, businesses, and financial market participants can benefit from around - the - clock, faster, and possibly programmable payments, both to reduce risk and to simplify financial transactions. increased competition that results from new forms of money and payments could lower costs, increase service availability, and stimulate further innovation. harnessing the benefits of innovation to consumers and businesses, while maintaining a safe and effective monetary system, may require new legislation, changes to regulations and to supervisory approaches, and modernization of traditional payment systems. the specifics of the appropriate initiatives will vary by country. these developments could have significant implications, including for financial stability, national security interests, and international cooperation. in my role as manager of the federal reserve ’ s system open market account, i am looking at these issues from the vantage point of monetary policy implementation. and in my remarks today, i will discuss some key issues that digital innovation in money and payments raises for policy implementation. in particular, i will examine how digital currencies might impact interest rate control and central bank balance sheets. in the spirit of this workshop, i won ’ t speak to the u. s. context specifically, but rather intend to discuss conceptual issues for policy implementation across jurisdictions. and, i won ’ t take a position on regulation, design choices, or a preference for a private or public solution. as always, the views i express today are my own, and do not necessarily reflect those of the federal reserve bank of new york or the federal reserve system. 1 private and public innovation i would like to start by describing two types of

s balance sheet relative to a stablecoin backed entirely by central bank reserves. however, this structure would also give rise to liquidity risk for stablecoin issuers, which might in turn give rise to a need for a backstop source of funding. these considerations raise important questions for how best to integrate digital currencies and ensure smooth market functioning and interest rate control in times of stress. how might the central bank ’ s balance sheet adapt? possibly the biggest question over time for monetary policy implementation is how much of the central bank balance sheet should be used to support innovation in currencies. the current two - tier system of money and payments has central bank balances at its center, but also features an expansive set of private money offered through bank deposit balances. innovation in payment systems may have clear benefits for consumers and businesses, and private currencies backed by safe central bank balances or other highly liquid safe assets are certainly better than alternatives created by less regulated firms and backed by lower quality or illiquid assets. however, to the extent that stablecoins or cbdcs supplant private bank money or expand overall demand for central bank liabilities, they could also increase the size and a larger balance sheet could cause some central banks to adapt approaches to asset composition to manage the influence of a larger balance sheet on the policy stance. for example, a central bank could buy short - duration assets to support the new demand for central bank liabilities and differentiate these asset purchases from those intended to foster accommodative financial conditions. these issues may also require new operational approaches for central banks. in some circumstances, the balance sheet could need to adjust rapidly because of unexpected large shifts in liability demand. this could require new thinking by central banks on the appropriate approaches to implementation with potentially a different mix of assets or tools to add liquidity to the system. shortduration assets or temporary liquidity providing operations would also allow flexibility if an increase in liability demand is expected to be short term. conclusion the innovation occurring in money and payments has the potential to alter the existing two - tier monetary system upon which current monetary policy implementation frameworks are designed. how things evolve from here is uncertain, and the impact of these innovations could be revolutionary, or more evolutionary. but imagining an environment in which new forms of private and public money and payments could coexist is helpful in adapting implementation frameworks that will enable central banks to continue to achieve their desired policy stance in the future