The Governor of the Federal Reserve (Fed) announced the beginning of a new chapter for the agency’s stance on cryptocurrencies and shared their goal of actively participating in the “technology-driven revolution” in the payments system.
Cryptocurrencies and decentralized finance are “woven” into payment systems
On Tuesday, Federal Reserve Governor Christopher Waller asserted that a “new era” for the federal agency has begun, signaling a shift toward the cryptocurrency industry and other emerging sectors.
At the Payments Innovation Conference in Washington, D.C., the governor discussed how the Fed aims to embrace and actively participate in the “technology-driven revolution” in the payments ecosystem, led by the cryptocurrency and decentralized finance (DeFi) sectors.
In his opening remarks, Waller explained that the goal of the conference is to have a “lively discussion” about how new technologies can enter mainstream payment systems, while also addressing the Fed’s new approach to decentralized finance and cryptocurrencies.
I wanted to send a message that this is a new era for the Fed in payments – the challenge industry is not viewed with suspicion or disdain. Rather, today we welcome you to the conversation about the future of payments in the United States and in our homeland—something that would have been unimaginable just a few years ago.
Multiple technological developments are transforming the payment system, including stablecoins, tokenized assets and artificial intelligence (AI), he explained, adding that the convergence of these innovations with the traditional financial ecosystem “demands change everywhere.”
Therefore, Waller argues that public institutions, including the Fed, must recognize and embrace private sector innovations capable of improving the payment system while maintaining its integrity and stability.
“This is an acknowledgment that distributed ledgers and cryptoassets are no longer on the fringes but are increasingly woven into the fabric of payment and financial systems,” he noted.
The “skinny” key accounts of payment innovation
The Fed governor said he has asked agency staff to explore creating a “payment account” to “effectively support those transforming the payment system.” As he explained, the payment account will be available to all legally eligible institutions and could be useful to those focusing on payment innovations.
“This payment account concept will aim to provide basic payment services to the Federal Reserve for legally qualified institutions that currently provide payment services primarily through an external bank with a full master account,” he explained.
According to Waller, the goal is to tailor the services of these new accounts to the needs of eligible companies, such as innovative banks, asset managers, retail payments companies, stablecoin issuers, technology companies, as well as crypto-native fintech companies, and “the risks they pose to the Federal Reserve Banks and the payment system.”
“Innovation in payments is moving quickly, and the Federal Reserve needs to keep up,” the governor emphasized. He explained the prototype of a “skinny master account,” which would provide limited access to the Federal Reserve’s payment pathways while controlling various risks.
It should be noted that the Federal Reserve Banks provide access to master accounts and financial services to legally qualified entities by following the agency's guidelines. New limited accounts will no longer have daytime overdraft privileges. They also won't be eligible for discount window borrowing or access all of the Fed's payment services, which Reserve Banks can't control overdraft risk in the light of day, Waller added.
“I want to be clear that this is just a boilerplate idea to provide some clarity on how things might change. The upshot is that the payments landscape, as well as the types of providers, have evolved significantly in recent years and, therefore, the new Account of Payments can better reflect this new reality.”
Ultimately, Governor Waller stated that the federal agency will reach out to all interested stakeholders and cryptocurrency companies to discuss views on the benefits and drawbacks of this approach.
Bitcoin (BTC) trades at $113,477 in the one-week chart. Source: BTCUSDT on TradingView
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