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Thoughts on the Fed's role in the payment system

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  • Edward J. Green
  • Richard M. Todd

Abstract

This essay concerns how the Federal Reserve’s role as a payment services provider can best be aligned with its broad mission to foster the integrity, efficiency, and accessibility of the U.S. payments system. A recommended strategy involves specialization in providing services where the central bank has a comparative advantage—notably, services directly related to providing a comprehensive, secure system of accounts for interbank settlement and potentially some additional services justified by economies of scope. If markets for other payment services evolve as expected, the recommended strategy would have the Fed generally rely on means other than direct service provision to help ensure that services are provided effectively and equitably. Several specific implications of this strategy are suggested. This essay also appeared in the “Federal Reserve Bank of Minneapolis 2000 Annual Report,” which was published in the April 2001 issue of the Bank’s magazine The Region.

Suggested Citation

  • Edward J. Green & Richard M. Todd, 2001. "Thoughts on the Fed's role in the payment system," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 12-27.
  • Handle: RePEc:fip:fedmqr:y:2001:i:win:p:12-27:n:v.25no.1
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    References listed on IDEAS

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    1. Freeman, Scott, 1996. "The Payments System, Liquidity, and Rediscounting," American Economic Review, American Economic Association, vol. 86(5), pages 1126-1138, December.
    2. Thomas J. Sargent & Neil Wallace, 1981. "Some unpleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
    3. North, Douglass C. & Weingast, Barry R., 1989. "Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England," The Journal of Economic History, Cambridge University Press, vol. 49(04), pages 803-832, December.
    4. Sargent, Thomas J & Velde, Francois R, 1995. "Macroeconomic Features of the French Revolution," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 474-518, June.
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    Cited by:

    1. Gary Richardson, 2006. "Correspondent Clearing and the Banking Panics of the Great Depression," NBER Working Papers 12716, National Bureau of Economic Research, Inc.
    2. Jonathan Chiu & Alexandra Lai, 2007. "Modelling Payments Systems: A Review of the Literature," Staff Working Papers 07-28, Bank of Canada.
    3. Tanai Khiaonarong, 2004. "Payment systems efficiency, policy approaches, and the role of the central bank," Finance 0405004, EconWPA.
    4. Khiaonarong, Tanai, 2003. "Payment systems efficiency, policy approaches, and the role of the central bank," Research Discussion Papers 1/2003, Bank of Finland.
    5. Tara Rice, 2003. "The importance of payments-driven revenues to franchise value and in estimating bank performance," Emerging Issues, Federal Reserve Bank of Chicago.
    6. Lacker, Jeffrey M. & Weinberg, John A., 2003. "Payment economics: studying the mechanics of exchange," Journal of Monetary Economics, Elsevier, vol. 50(2), pages 381-387, March.
    7. Holthausen, Cornelia & Monnet, Cyril, 2003. "Money and payments: a modern perspective," Working Paper Series 245, European Central Bank.

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    Keywords

    Payment systems;

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