Source: Federal Reserve official website, compiled by Golden Finance. On October 21st, local time, the Federal Reserve held a conference on payment innovation to discuss stablecoins, artificial intelligence, and tokenization. Federal Reserve Governor Christopher J. Waller delivered a speech titled "Embracing New Technologies and New Participants in Payments." In his speech, Waller stated that the Federal Reserve has proposed a new type of restricted master account (called a "Lite Master Account") that would allow all legally compliant institutions to directly access the Federal Reserve's payment system without relying on partner banks. This "Lite Master Account" does not offer all the services of a full master account, such as the ability to borrow from the Federal Reserve, but any legally compliant entity can apply, and the eligibility rules will not change. This move will allow the Federal Reserve to give the green light to innovative banks, fintech companies, stablecoin issuers, and other payment companies. Crypto journalist Eleanor Terrett commented that this move is significant for companies like Custodia Bank and Kraken, which have been trying for years to obtain a master account at the Federal Reserve, with Custodia even taking the Fed to court. Furthermore, this move could expedite access for companies like Ripple and Anchorage that applied this year. Below is the full text of Waller's speech: Thank you, Susan, and good morning, everyone. Welcome to the Federal Reserve Board for our inaugural Payments Innovation Conference. I have two goals in hosting this conference. First, I want it to focus on new technologies in decentralized finance (DeFi) and cryptocurrencies, and how they are entering the mainstream payments ecosystem. My goal is to foster a vibrant discussion about payments between traditional payment giants and new entrants into the DeFi space. Second, I want to convey a message: The Federal Reserve has ushered in a new era in payments—one where the DeFi industry is no longer viewed with skepticism or disdain. Today, we welcome you to discuss the future of payments in the United States—something that would have been unimaginable just a few years ago. It's no secret that we are in the midst of a technology-driven payments revolution, and I'm here to say that the Federal Reserve intends to be an active participant in it. Numerous technological advances are transforming the payments system. Stablecoins and tokenized assets leveraging distributed ledger technology, and the rapid adoption of artificial intelligence (AI) are increasingly integrating these innovations with the traditional financial ecosystem. This includes the institutions and infrastructure that have long underpinned our economy's secure and efficient payments system. And yes, the Federal Reserve plays a crucial role. This revolution in payments is requiring changes across the board, and I'll detail some of the new approaches the Federal Reserve is exploring to support these innovations. I've previously discussed the two main models I see for payments innovation in market economies. The first is private-sector-led innovation. Most innovation comes from the private sector, which is proactive and best able to allocate resources and take risks to explore new technologies. The second model involves public-sector entities like the Federal Reserve building platforms and providing services that enable the private sector to more easily and quickly offer new services to its customers. This model should be pursued on a rare basis and in limited, specific markets. Public institutions, including the Federal Reserve, should recognize and embrace private-sector innovation that can improve the payments system while maintaining its security and stability, which is crucial for both the new generation of innovators and established institutions. Let me step back a moment to review how we got here. Since its inception, the Federal Reserve has worked with the private sector to improve the efficiency of the payments and settlement systems. From the outset, the clearing services provided by the Federal Reserve Banks eliminated the need to transport cash daily in armored cars and armed guards. Long before we even began talking about the "payment rails" that enable the kind of innovation we're discussing today, the Federal Reserve was already running trains on steel rails to deliver and clear paper checks across the country. Fedwire, the Federal Reserve's electronic funds transfer system, began transferring money between banks over telegraph wires in the early 20th century. Fast forward to today, and we have multiple infrastructures that settle interbank transfers in real time. Today's conference will focus on innovation driven by the private sector. We've invited 100 private sector innovators who are leveraging cutting-edge technologies to create new possibilities in payments. Our panelists are working to integrate traditional financial payment channels with distributed ledgers, develop new products and services in the digital asset ecosystem, and apply artificial intelligence to payments. Notably, the companies participating in these events include banks, asset managers, retail payments firms, technology companies, and crypto-native fintechs. This demonstrates that distributed ledgers and crypto assets are no longer marginalized but are increasingly integrated into the fabric of the payments and financial systems. Before hearing from these innovators, I want to discuss the Federal Reserve's role in supporting the private sector. This includes serving as a convener to resolve coordination issues and operating core payment and settlement infrastructure. We are also looking ahead to conduct hands-on research on the intersection of tokenization, smart contracts, and artificial intelligence with payments for use in our own payment system. We are doing this to understand the innovations occurring within the payment system, assess whether these technologies offer opportunities to upgrade our own payment infrastructure, and enable deeper conversations with industry about these new technologies. While this is a good start, I believe we can and should do more to support those actively transforming the payment system. To this end, I have asked Federal Reserve staff to explore the concept of what I call a "payment account." Currently, the Federal Reserve provides master accounts and financial services to legally qualified entities, in accordance with our "Guidelines for Evaluating Account and Service Requests." This payment account will be open to all legally qualified institutions and will benefit those primarily focused on payment innovation. This payment account concept is designed to provide basic Federal Reserve payment services to qualified institutions that currently conduct their payments primarily through third-party banks with well-established master accounts. Many qualified institutions with substantial payment activities may not require all the functionality of a master account, nor access to the Federal Reserve's full suite of financial services, to successfully innovate and serve their customers. Our goal is to tailor the services of these new accounts to the needs of these institutions and the risks they pose to the Federal Reserve Bank and the payment system. Therefore, it is important that the review process for these low-risk payment accounts be streamlined. Payments innovation is moving rapidly, and the Federal Reserve needs to keep pace. To be more specific, let me describe a possible prototype of such a payment account (which I sometimes call a "lite" master account). This account would provide access to the Federal Reserve's payment systems while controlling for the full range of risks to the Federal Reserve and the payment system. To manage the size of the accounts and their impact on the Federal Reserve's balance sheet, the Reserve Bank will not pay interest on balances in payment accounts and may impose a cap on balances. These accounts will not have intraday overdraft privileges—if the balance reaches zero, payment requests will be rejected. They will not be eligible to borrow from the discount window or access all Federal Reserve payment services, as the Reserve Bank cannot control the risk of intraday overdrafts. I want to be clear that this is just a prototype idea, intended to illustrate how the landscape might evolve. In short, it seems to me that the payments landscape and the types of providers have changed dramatically in recent years, and that new payment accounts could better reflect this new reality. As the Federal Reserve staff explores this idea, we will be communicating with all interested stakeholders to hear their views on the pros and cons of this approach. With that, I'll move on to the truly exciting part of this conference, which is about innovation and the future of payments. Thank you to everyone who took the time to attend, and thank you to the audience and the many people watching online. A special thank you to the Federal Reserve staff for their quick work to put this conference together before the Federal Reserve's busy fall schedule. On with the conference!
Alex
Weiliang
Weatherly
Catherine
Kikyo
Miyuki