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In years past, the Minneapolis Fed's Annual Report essay has often voiced ideas that cut against the grain of conventional wisdom, including, on occasion, wisdom within the Federal Reserve. It's not that we're given to iconoclasm for its own sake; rather, it is our intention to inform debate on particular issues that we think significant, irrespective of their popularity. This year's essay is no exception.
Unlike monetary policy and banking supervision, the role of the Federal Reserve System as a payment services provider is likely less well-known among the general public, and yet this function demands a great deal of our time and effort. The collection of checks, the processing of electronic funds transfers and the provision of net settlement services to private clearing arrangements may seem rather arcane, but they are also rather important for a smooth-running economy.
The question at hand regards the Federal Reserve's role in the payments system, generally speaking, but specifically its role in a system that is undergoing rapid change due to technological and institutional innovations. As Ed Green and Dick Todd write: "[I]n every significant transformation of the economic environment, all institutions must monitor, and if necessary realign, their strategies." While the views in this essay are Ed and Dick's, we are clearly sympathetic to their overall message, and their work provides a useful framework to think about the Federal Reserve's role in the evolving payments system. It is important to emphasize, though, that we print the essay to stimulate thought and discussion at this stage. The essay does not represent any change in Federal Reserve policy, practice or commitment to serve particular payment services markets.
To sum up, the essay may not provide all the answers but it raises some pertinent questions. Those of us within the Minneapolis Fed spend a fair amount of time considering such questions, as befits our role, but we also think there is value in discussing such issues within a public context. I hope you agree, and that you find the following essay informative and engaging.
