Central Bank Credit in the Theory of Money and Payments

I’m honored to have the opportunity to speak at this conference, although I must admit that I find the conference’s title a bit puzzling. I can certainly think of more than two conferences on payment economics. Why, the Richmond Fed alone has sponsored two; one in 2000 and one way back in 1987. But provenance aside, Jamie and Will and everyone else at the New York and Atlanta Reserve Banks who have contributed to organizing and staging these two conferences deserve our grateful commendations. Indeed, I’m quite heartened by the proliferation of gatherings like this, at which economic theory, econometric evidence and lessons from history are all brought to bear on questions surrounding payments systems. These conferences have been vital to the maturation of payment economics — the study of the mechanics of market exchange — as a distinct field of inquiry. Payment economics is no narrow technical specialty, either: it builds on monetary theory, since use in payments defines monetary instruments. It also draws on banking theory, based on the observation that virtually all institutions that we usually think of as banks are significantly involved in payments intermediation.