On November 12, the Fed’s Christopher Waller addressed a conference in New York City, discussing the roles of the private sector and the Fed in the payments ecosystem. Waller emphasized that while the private sector is typically more efficient in providing goods and services, in some cases government involvement is needed to solve for market inefficiencies such as a lack of coordination and incomplete markets. His remarks focused on the Fed’s role in payments in clearing in the U.S., and how this role has evolved over time.

Waller recounted key milestones in the development of the U.S. payment system, noting that the Fed has played a crucial role since its establishment, particularly in providing a nationwide check-clearing system and a telegraph wire transfer service (known as the Fedwire Funds Service). He also noted the Fed’s recent efforts with FedNow to address coordination problems in instant payments, leveraging its connections with thousands of financial institutions to promote efficient and responsible innovation.

Waller argued that the private sector is better positioned to develop and deploy new payment technologies due to its willingness to take on innovation risks, its efficient allocation of resources, and its ability to explore how well new technologies can address actual shortcomings in the current payment system. However, he noted that the government also can play a role “to narrowly address problems like those of coordination that can’t always be efficiently solved by the private sector alone.”