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Step Aside, Fed: There’s Already an RTP® Network

There’s no real need for a faster payments system from the U.S. Federal Reserve – one already exists in the form of The Clearing House’s RTP® network.

So argues, George Selgin, director for Center for Monetary and Financial Alternatives of the Cato Institute. In his response to the Federal Reserve Board of Governor’s Request for Comment on Potential Federal Reserve Actions to Support Interbank Settlement of Faster Payments, Selgin makes the case that the Fed’s efforts would not only be unfair in terms of competition, it could prove counterproductive and violates the agency’s established provisions.

According to Selgin, TCH’s RTP network already does the job. In fact, TCH started working on the RTP network in 2014, one full year before the Fed opened its faster Payments Task Force, of which TCH was a member.

The RTP network is already operating, as Selgin explains: 
“The RTP system relies on a Fed Master Account that is jointly-owned by the participating banks, of which TCH is the sole custodian. The participants must prefund their portions of the pooled account, in amounts established by TCH rules. Payments made on the RTP network are cleared and settled almost instantaneously on the RTP network account ledger, with accounts replenished (or excess credits transferred to individual bank accounts) through Fedwire. The system is free of any settlement risk, operates 24x7, and is open to all banks, with a fixed cost of 4.5 cents to payment senders – that is lower than the 5.2 cent cost of same-day (but far from near-instantaneous) ACH payments.

Selgin adds that TCH’s flat-fee aims to attract smaller depository institutions “by allowing them to effect payments on the same terms as their larger rivals.”

Although the RTP network at the time of Selgin’s letter was far from “ubiquitous,” Selgin argues that “it is just as capable as a Fed-provided RTGS system would be of becoming so, and perhaps more capable, other things equal, owing to its first-mover advantage.”

Read George Selgin’s entire comment letter to the Federal Reserve Board of Governors

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