The U.S. banking system does not need a new and potentially disruptive real-time payments system from the U.S. Federal Reserve – it already has one in the form of the The Clearing House’s RTP network, argues Ike Brannon, who runs policy at Capital Policy Analytics in Washington, D.C. Besides, a Fed system would not necessarily mean a smoother, more intuitive faster-payments system.
In fact, its very existence could muddy the flow of desperately needed payments for the country’s working poor. Brannon argues that having two real-time systems in a single banking geography would create several problems. “First, these two systems would likely not be interoperable, which would mean that banks would either need to invest in two distinct systems or else simply be unable to transact immediately with entities with accounts at a bank on the other system.”
A bigger problem is that the Fed is the wrong entity to build a real-time system. As a cumbersome public bureaucracy, it is inherently slow and has a long deliberative process, and it has already said it would need several years to have its system up and running. That reality would likely result in a significant delay in the arrival of real-time payments in the U.S.
Finally, there is an inherent conflict of interest with the Fed serving as both the regulator and competitor to the private sector payments system: it would be as if the FDA both manufactured and held the power to approve new pharmaceuticals.
Brannon believes that The Fed should continue on its mandate of “controlling inflation and promoting economic growth and allow the private sector to modernize the U.S. payments system.” After all, the push for an operational real-time payments system “is already well underway,” he writes.
Read Ike Brannon’s complete op-ed at here.