Fed’s Waller: Private sector should lead on payment system innovation

By Michael S. Derby

NEW YORK (Reuters) – Federal Reserve Governor Christopher Waller said on Tuesday that he believes the private sector should lead when it comes to payment sector innovations.

“I hold the view that it is generally the private sector that can most reliably and efficiently provide goods and services to the economy. And I apply this view to the payments ecosystem,” Waller said in the text of a speech prepared for delivery before The Clearing House Annual Conference 2024, held in New York.

Waller asked, “what is the fundamental market inefficiency that would be solved by government intervention and can only be solved by government intervention?” He noted, “if there isn’t a satisfactory answer, then I believe government shouldn’t intervene in private markets.”

Waller did not comment on the monetary policy and economic outlook in his prepared remarks, which centered on the role the Fed plays in the payment system.

He said the Fed “stands ready” to help the payment system evolve “primarily through our operational role in the payment system, by providing core clearing and settlement infrastructure on which the private sector can innovate.”

He noted that role is consistent with what the central bank is doing with FedNow, its real-time payment system.

Waller also said one key role the Fed can play is to bolster private sector efforts to link financial institutions in a “decentralized and diverse” banking system.

The Fed governor also continued to express skepticism over a Fed digital dollar, or CBDC. “What market failure or inefficiency demands this specific intervention? In more than three years, I have yet to hear a satisfactory answer as applied to CBDC,” he said.