Should the Fed deliver a faster payments system?
“What Role Should the Federal Reserve Play in Developing a Faster Payments System?” This was the title of a two-part debate hosted by The Bridge, the policy forum sponsored by The Mercatus Center at George Mason University.
Here are a few highlights from the first round exploring what the Fed’s role should be in developing a faster payments system:
Aaron Klein of the Brookings Institution thinks the Fed should mandate faster payments, but not necessarily serve as a provider:
The answer is simple. The Federal Reserve should use its existing legal authority (Section 603 of the Expedited Funds Availability Act) and simply mandate real-time payments in six months. Safeguards to protect against fraud ($5,000 funds limit, existing customers only, etc.) can be reasonably carved out. Financial institutions can choose to participate in existing real-time payment systems, develop their own, or provide the funds to consumers before they actually clear (several already do). The Fed is conflicted in its dual role in operating a payment system while regulating payments for everyone.
Modernizing, our payment system will empower Americans to better manage their hard-earned cash and have more of it.
George Selgin of the Cato Institute, opposes the Fed serving as a provider:
[A Fed based system] will delay, rather than expedite, the establishment of a ubiquitous faster payments network. Because the RTP system already exists, banks might easily comply with Aaron’s six-months mandate simply by joining it. In contrast, it will take the Fed several years to establish a new RTGS system. Yet the very prospect of an alternative Fed-administered fast-payments mechanism has discouraged many banks from joining the RTP network, for none wish to invest in a network that Fed actions may render obsolete.
Professor Jim Angel of Georgetown University’s McDonough School of Business supports the Fed providing faster payments, but he also notes that the Fed hasn’t kept pace with payments technology advances over the years:
The Federal Reserve once was a leader in payment modernization. In 2001, the Fed proposed and Congress adopted the Check-21 Act. Since then, the Fed has failed to use its legal authority to adequately keep pace with technology and benefit consumers. Under the law, the Fed has the legal authority to mandate and/or operate a real-time payment system. Instead, the Fed has done neither. That inaction continues to cost working class America’s billions a year.
Read the full part one of the Mercatus Debate.
You can also read the Introduction to the Mercatus Debate.