The result has been a rapidly growing debate in the official sector about whether central banks should issue digital currencies of their own – so-called central bank digital currencies (“CBDCs”). 7 See generally BARRY EICHENGREEN, EXORBITANT PRIVILEGE: THE RISE AND FALL OF THE DOLLAR AND THE FUTURE OF THE INTERNATIONAL MONETARY SYSTEM (2011) (explaining that the dollar is in danger of losing its status in the global economy); see also Mu Changchun, Director, People's Bank of China, Keynote Fireside: A Conversation with Mu Changchun, Director General, People's Bank of China at the Central Bank of the Future: Building a Financial System for a More Inclusive Economy , at 3:37:05 (Nov. https: //www.youtube.com/.Manager, Bank for Int'l Settlements Princeton University Lecture: The Future of Money and the Payment System: What is the Role of Central Banks Central Bank accounts are made up of base money, which means they are completely sovereign and will not fail no matter how large the balance.
They would also have all the special features that banks currently have on their central bank accounts, as well as some additional additional features. Bank, The Future of Central Bank Money (May C]entral banks today could make use of new technologies that would enable the introduction of what is commonly referred to as a 'token-based' currency, based on a distributed ledger technology (DLT). ) or comparable cryptographic technology."). 17 Cf. Aleksander Berentsen & Fabian Schar, The Case for Central Bank Electronic Money and the Non-case for Central Bank Cryptocurrencies, 100 FED.
The interest rate paid on central bank accounts (known as the interest-on-reserves or IOR rate) would be attractive to large corporations and other institutions. For another skeptical view, see Cceur6, supra note 13 (“From today's perspective, there are no clear advantages to allowing the public to hold digital central bank reserves ..”).
FEDA CCOUNTS
If widely adopted, FedAccount would likely add to the Fed's balance sheet, raising questions about how the Fed allocates its investment portfolio. For now, it is sufficient to state that the FedAccount would not involve the Fed in lending to individuals or non-banking companies, nor would it necessarily affect the aggregate offer, or the price of credit or Not so long ago, virtually all payments involved physical means of payment - cash and checks - and ubiquitous banking locations for residents were central to the functioning of the payment system.
Modern telecommunications and information technology – including the Internet, mobile communication networks, payment card terminals and smartphones – have made physical payment media increasingly relevant for everyday transactions. Electronic payments now dominate.43 Such payments consist of electronic financial transactions that do not require physical delivery of payment media at any level of the system. This would require significant investment, but the handling and transportation of cash and checks takes place entirely in the Fed's control room.48 Second, the Fed could engage third-party banks, credit unions, or ATM networks as Fed agents to receive cash and check deposits. from FedAccount holders.
Third, the Fed can engage nonbank retail outlets to serve this agency function for the unbanked and unbanked populations. Although phasing out cash and checks is not necessarily a goal of FedAccount, the program would push in that direction.50.
BENEFITS
Financial Inclusion and Consumer Protection
In fact, for reasons that will become clear in Part II, the FedAccount would hasten their downfall. Western Union: What's the difference?, INVES- TOPEDIA (Jan https://www.investopedia.com/articles/personal-finance/081715/sending-money-moneygram-vs-western-union.asp [https://perma .cc/MLP9-E7HW]. 58 See, e.g., Plan Fees, RUSHCARD, https://apply.rushcard.com/start?audience=Directmar-keting#legal-fees [https://perma. cc/84H3- 5SXG]; see also Prepaid Accounts under the Electronic Funds Transfer Act (Reg. E) and the Truth in Lending Act (Reg. Z), 81 Fed.
April https://econreview.berkeley.edu/banking-and-poverty-why-the-poor-turn-to-alternative-financial-services/ [https://perma.cc/9VXS-JZFG]. Feb https://www.brookings.edu/opinions/americas- poor-subsidize-wealthier-consumers-in-a-vicious-income-inequality-cycle/ [https://perma.cc/. FedAccount will have no fees or minimum balance requirements and will be expressly marketed as a public service, open to all.
FedAccount would attract millions of people who currently choose not to hold or are unable to hold a bank account, dramatically reducing the number of unbanked and unbanked households.78 These households would benefit enormously. Also, FedAccount would ease the oversight burden on state and federal consumer agencies and bank regulators because overdraft abuse and other bank account-related consumer protection issues would decline, as would the use of FedAccount products. substandard credit.
Payment Speed and Efficiency
Although The Clearing House, a consortium of major banks,87 launched a real-time payment service in 2017,88 the reach so far has been modest; banks' incentives to improve settlement times are mixed because faster payments would cut into their fee income.89 In addition, small banks have been wary of committing to a system run by the largest banks.90 Promisingly, in 2019 the Fed proposed a new RTGS service called FedNow to facilitate 24/7 real-time retail payments through banks of all sizes.91 But the service is not expected to be up and running until 2023 or 2024, prompting criticism that the service should be called not FedNow, but "Fed Five Years From Now."92 Moreover, big banks remain resistant despite small banks, retailers and technology companies applauding the move.93. FedAccount payments would immediately clear network users and solve at least part of the payment problem in one fell swoop. 87 Our History, THE CLEARING HOUSE, https://www.theclearinghouse.org/about/history [https://perma.cc/YU2Z-5GG2].
90 See Kevin Wack & Hannah Lang, Fed Plans to Launch Real-Time Payment Service by 2024, Am. Sys., Delivering Faster Payments for All, Remarks at the Federal Reserve Bank of Kansas City Town Hall (Aug FedNow Service, FED. RSRV., https://www.frbservices.org/financial-services/fednow/index. html [https ://perma.cc/LLV9-767E].
92 Kevin Wack, And Now the Hard Part of the Fed's Road to Real-Time Payments, AM. By bringing more transactions directly to the Fed's central ledger, FedAccount would reduce transaction costs and generate positive spillovers throughout the economy.
Financial and Macroeconomic Stability
At the end of 2008, the Fed began paying interest to banks on their central bank accounts for the first time.116 This was a revolutionary shift in the Fed's operational approach to monetary policy. The Fed's monetary policy will not affect the economy as desired if market interest rates do not cooperate. 125 See Darrell Duffie & Arvind Krishnamurthy, Pass-Through Efficiency in the Fed's New Monetary Policy Setting, FED.
The best way to avoid interchange and network fees will be to bypass the existing card networks.137 Fortunately, the Fed is well positioned to do this. The Fed already processes payments by its account holders through Fedwire, its venerable real-time payment network.138 Once central bank accounts to the gen-. Existing Fedwire fees will be eliminated, returning the Fed to its old system of free interbank transfers.144 Through all per-transaction fixed and ad.
FedAccounts will increase base money, thereby simultaneously increasing the interest-bearing debt instruments the Fed holds in its portfolio. During this initial phase, migration to FedAccounts will not affect the Fed's balance sheet size. Correspondingly, the Fed's balance sheet will grow in this phase as incremental discount window loans match incremental FedAccount balances.
Unlike discount window loans, some of which the Fed may want to keep outstanding indefinitely (see below), any Section 13(3) liquidity must be strictly transitory. 13(3) may be intended to allow the Fed to supply liquidity to money market funds, which normally cannot borrow. In this regard, the Federal Open Market Committee has stated its intention that the Fed "will hold primarily Treasury securities, thereby minimizing the effect of Federal Reserve holdings on the distribution of credit across sectors of the economy." FED.
It simply requires expanding access to a desirable, proven product that the Fed already offers—central bank bank accounts.2 10 The existing literature on CBDCs has overcomplicated and mystified a topic that should be straightforward. This article has reservations about getting government agencies, whether the Fed or the Postal Service, into the business of small dollar debt collection. The Fed's unparalleled degree of administrative independence provides an additional level of protection in this regard.28 8.
Those who don't like the Fed having their bank statements don't need to apply. The Fed could provide individual account information to lenders, with the account holder's consent. The Fed is already authorized to hold accounts for both depository institutions and the US.
34; by or on behalf of a depository institution."309 This provision would have to be adapted to authorize the Fed to pay interest on balances held by all U.S.
