The paper is: “Strategies for Improving the U.S. Payment System; Federal Reserve Next Steps in the Payments Improvement Journey“. Despite the title’s length it makes for interesting reading.
The problem according to the Federal Reserve
Most, especially those outside the US, agree that the US Payment System is awful. It is expensive, slow and not customer friendly. There is still an astonishing dependence on checks (aka cheques in English English). in 2016 the number of check payments fell to 17.3 billion, with a value of $26.83 trillion. Yet these figures ‘hide’ a technological masquerade – the ingenious practice of using your phone camera to image a check in order to make a deposit to your bank account.
As the Fed says in its introduction “Two and a half years ago, the Federal Reserve issued a call to action in the Strategies for Improving the U.S. Payment System (Strategies) paper, asking stakeholders to come together in pursuit of a better payment system for the future. (That) call was answered, with hundreds of organizations and individuals collaborating to support progress on achieving the five desired outcomes shared by the Federal Reserve and industry, for:
- international payments
These desired outcomes continue to reflect the shared vision of the Federal Reserve and a broad spectrum of payment system stakeholders in the United States. The Federal Reserve recognizes the tremendous contributions of leadership, time, and effort to date, and seeks continued stakeholder commitment to the desired outcomes that remain the guiding framework for U.S. payment system improvements.”
Federal Reserve progress, but not much
“Good progress has been made, but much work remains to implement safe, ubiquitous real-time retail payments and enhance the safety, efficiency, and resiliency of the U.S. payment system. The Federal Reserve and payment system stakeholders face challenges on the road ahead, and the Federal Reserve is committed to ongoing collaboration and progress. Together, the Federal Reserve and payment system stakeholders can achieve the shared vision for fast, secure, and, efficient payments that meet the future needs of consumers and businesses.”
This does not suggest imminent implementation. Nevertheless, in matters concerning money, caution must rule for the Fed.
Where do blockchains come in?
The Fed does not use the word blockchain. It prefers distributed ledger technology (DLT).
Two mentions arise:
- “As these efforts were underway, private sector providers have moved to design, and in some cases, introduce faster payment capabilities to end users. The payments industry also has begun exploring potential uses of digital currency and distributed ledger technology in delivering faster payment solutions. In addition, same-day automated clearing house (ACH) credit payments began flowing through the networks in fall 2016, with 13 million payments cleared in the first 100 days...”
- “In addition to these three tactics, the Federal Reserve will consider other enhancements to its existing services and will continue to monitor, study and solicit input from stakeholders to understand the implications of new payment technologies and models, including distributed ledger technologies and digital currencies, that can facilitate a safe and efficient U.S. payment system.“
What does it mean
Though the two mentions in the Fed paper are hardly headline items, the fact that the Fed recognises that blockchains are a focus of attention does matter. As the Bank of England has shown (albeit with doubts), and as UBS is exploring on a commercial basis, a private distributed ledger technology solution could deliver transparency and immutability benefts. That these would apply to a relatively small, well-defined community (the banks) would make such an innovation easier to manage and police.
The 2016 paper (quoted above) made no reference to DLT or blockchains. Perhaps, in 2018, there will be a plan for a pilot of a privately Federal Reserve blockchain?