Immediate Funds Transfer: A Central Bank Perspective

I am honored to be asked to speak at this conference. I have had a longstanding interest in payment economics, particularly the economics of payments systems innovations. From that perspective, the topic of this conference — immediate funds transfer — is intriguing because what it represents — low-cost, real-time funds transfer for all — sounds like payments system nirvana. I would like to use my remarks today to review some of the thinking that I and others — mostly others — have devoted over the years to the role of the central bank in the payments system, particularly in regard to payments innovations. I also would like to emphasize that these remarks are my own and the views expressed are not necessarily shared by my colleagues in the Federal Reserve System.1 Central banks have a natural interest in the development and evolution of payments systems. In fact, one could legitimately say that payments systems are central to central banking. The processes by which payments get made, cleared and settled represent the mechanics of monetary exchange, and the characteristics of these systems can affect the transmission of monetary policy to economic activity and inflation.2 Related, most payment arrangements achieve finality through the transfer of central bank liabilities, whether in the payment of cash at the point of sale or in the transfer of reserve balances between the banks of the payer and payee. Indeed, the historic origin of central banks is as public sector intermediaries for the clearing and settling of payments, such as bills of exchange — central banks are essentially nationalized clearinghouses.3