>> thank you so much. now, i'm going to announce the next three at one time. dr. shirley rain, president of university of memphis. walter pitt hyatt. i never knew that was your name. i just know pitt. chairman of the hyatt family foundation and melanie hudson president of the children's health forum and then a music selection from the middle baptist church choir and then we'll bring on the preacher. [applause] >> she was here early, too. on time. bless you. >> thank you. >> thank you so much. >> i'm here because i'm a memphisian. and because i represent the university of memphis. and i'm here on behalf of the

entire university of memphis community on behalf of our dr. daphne mcferrin who's the director of the hooks institute. and i'm here because i'm a friend of maxine smith. and i am here because i am a friend of mrs. hooks. francis. i want you to know that the university of memphis is privileged to be the place where the hooks papers are stored. [applause] >> and we have beside our honored name the honored name of the benjamin hooks institute for social justice. [applause] >> and i promise to all here who

have spoken and sung his praises and preached his praises that we will keep alive the legacy of this giant of a man and a civil rights leader. and we will provide for posterity a place where scholars can study his papers and his great works. and we will keep alive what he meant in his life to so many of you who were pioneers in the civil rights movement. but let us also remember that at the university of memphis, he was a distinguished faculty member in the department of political science and history. he made a significant and lasting contribution when he established the benjamin l. hooks institute for social change at the university of memphis.

but think about what it must have been like to be a student in his class. how wonderful to sit and to learn from a great intellect. a great speaker but a great teacher. a person who was both gifted as an orator but gifted as a scholar. so we will remember him also for not only his great deeds but the fact that he saw in the future that he wanted to be sure that his papers and the people with whom he interacted would be saved for others to study and to learn from. so we're grateful, francis. we're grateful, mrs. hooks. we're grateful, pat. and we are grateful to all of

you who have knew him. for making certain that his legacy will continue through the benjamin hooks institute. i was trying to decide if i would say this one other thing. and i think i must. because several years ago when i lost my dear mother, dr. hooks came 70 miles away it off a little town in a little country church to comfort me. so i will say that i am inspired by his great works. i am inspired by all the great honors. and i am inspired by the sermons i heard at the greater middle baptist church. but i have to say thank god i have been inspired by having him to comfort me.

thank you. [applause] >> francis hooks family, there's so much that we can say today about my friend, but it seems to me that it all comes down to one overriding thing. that is particularly true for me. for the past 20 years, i have been blessed to call ben my close friend. if ben were here today. he would no doubt remind us that in the sacred book that defined

his whole life, it says blessed are they who mourn, for they shall be comforted. it also says blessed are the peacemakers for they shall be called the children of god. and finally, blessed are those who are persecuted for the shake of righteousness for theirs is the kingdom of heaven. yes, ben hooks was blessed. he was indeed persecuted in the segregated south. as he fought for the civil rights movement. but he was a peacemaker who saw everyone as the child of god. and it is that reality that comforts us today as we mourn his loss. ben talked with kings and presidents. but he was just as comfortable talking to a struggling single mother.

or a youth in the criminal justice system. all of us who were his friends were constantly amazed at how he could relate to any person. and that he always knew just what to say to lift their spirits. to give them hope. and to direct their lives. i saw it time and time again on the faces on the visitors of the national civil rights museum. as he brought history to life. and made the photographs come alive with his stories of courage and principle. in particular, i remember the impact that he had on nobel prize winners like desmond tutu and the dalai lama. and other freedom award winners as he gave them a personal tour of the museum. he was, in fact, their peer and colleague.

there's nothing more moving and meaningful each year than the ceremonies of the freedom awards of the civil rights museum. as leaders for human rights from all over the world, gather in memphis to pay tribute to mankind's enduring impulse for freedom. getting to hear these human right leaders has been a highlight of my life. but getting to hear my friend, ben each year was even more special. year after year, he reminded us that he was indeed a drum major for freedom. we honor him today with this celebration of his life. but we honor him tomorrow and the days ahead by remaining true to his principles. and to the fight for human

ghts tt characterized his life. today he's been allowed to go to the mountain. and he's looking over us. and he's seen the promised land. more than that, he's now entered the promised land. and he has found a place where all of us are judged by the content of our character and not by the color of our skin. as ben so often said, we have made historic strides in our dream of equal rights. but the journey is not over. inspired by his example and his courage, we leave the celebration of his life today with renewed purpose to a dream that will never die. i love you ben. and i will miss you very much. thank you. [applause]

>> good afternoon. i'm actually olivia morgan i'm on the board of the children's health board. my colleague, melanie hudson is right over there. i met dr. hooks about eight years ago when he decided to take on a new project. he had worked on health issues, health disparities during his time at the naacp. and now wanted to start a nonprofit focused on diseases that disproportionately impact underserved children starting with childhood lead poisoning. he recruited another lion of american history jack kemp to serve his his cochair. got a small amount of seed funding and brought me in to help create the organization. resources were tight all around. dr. hooks wanted to take a new approach to a seemingly unsolvable problem and not everyone agreed with him.

the obstacles were daunting. but he was always certain of his vision and of our mission and of its eventual success. after a few years we started to succeed. he and jack kemp got congress to fund a new grant program to cities to clean up lead in homes. and he doggedly worked to keep support for the program alive. today over $335 million has gone through this program to clean up rental homes in 59 communities across this country. [applause] >> and thousands of children and families have full, bright because of what he did. dr. hooks, though, was not one to sit on his laurels. i think he was about 80 when he turned to me one day and said, olivia, when we take care of this lead problem, we got to get to work on aids. we celebrated dr. hooks' 80th

birthday in washington an evening none of us will ever forget. thank you, melanie. congratulations and well wishes poured in from presidents, senators, colleagues, and friends. i think some people here joined us here. the letters and notes coming this past week have been sadder in tone but full of the same admiration, love and gratitude. it was an honor and a privilege to work with dr. hooks. every member of the chf staff has a memory of an adventure with him, a dinner spent with doctor and mrs. hooks. an impromptu history lesson changing the way we see the world and traveling with dr. hooks was a marvel. he was always in good spirits. and he knew how to make an entrance. he would ride that scooter into a room and just light up the place with his smile. one time we were traveling together in milwaukee, i think. and there's a big four-lane road we needed to cross. and we were in a hurry. he needed to get across that

road fast. and the nearest crossoff was near down the street. and he convinced me to jaywalk. now he was in his 80s. and he was in his wheelchair. and i was about 7 months pregnant. and i looked -- i mean, i was big. and he said, olivia, just push me across the street here. they won't dare hit us. [laughter] >> people always recognized him everywhere we went. not just mayors and members of congress, that too, but every day people. the security guards, people in offices, people on the street. you'd see that light of recognition in their eyes. and they'd stand just a little bit taller. a lot of time with celebrities people want something from themselves when -- for themselves an auto, a photograph or a story they can tell their friends. though with dr. hooks, they just wanted to thank him for what he had already given him.

they'd hold a door for him. call the elevator, find him a seat. show him that they were the person he believed them to be. on behalf of chf's board, its staff, its extended family and colleagues, i want to express our gratitude for the life of dr. hooks. and our most special admiration and love for mrs. hooking and pat and the whole hooks family. there is just an ocean of people whose lives you have touched. and yet you made each one of us feel special. thank you. [applause] >> as we prepare now -- as we prepare now to bring the

eulogyist to us, now if you be honest you knew when you left home this was not going to be no short funeral. [laughter] >> somebody said i intend to make it short. no matter how long it takes. reverend dr. melvin, how are you doing, francis? are you doing all right? i want to check on you. she's a bossy lady, too. [laughter] >> good bossy. pastor melvin is a pastor of our church. i had an illness for a year. and he had just come into the ministry. and he took care of my services for a full year. so you know how i feel about him. he's coming now and we're going to be in prayer for him as he

comes for words of comfort. dr. melvin charles smith. [applause] >> miscommunication. >> as we communicate, let the church say amen. at this time, reflections of a life well lived. representing the family of this great man that we're here honoring today. the charles wallace, jr. m.d. and michael hooks, sr. will you come in that order? [applause] >> god bless you. thank you very much. i'm so honored and privileged to be a designee for the family.

there's been so many beautiful things said about the giant. the commercial appeal put it properly. they said a giant is gone. but in the eyes of me and, i guess, every family member that came from near and far, dr. benjamin hooks was known affectionately as uncle bennie. and this was a beautiful, beautiful person. he's a tremendous man of god. he inspired us like never before. there is nobody -- i know any close family member that was not touched by his presence, by his oration. by his concern. especially he and francis together. i'm not going to stand before you long. but i want to thank each and every one of you for supporting him for coming out for being a blessing. i was privileged to work with ben, uncle bennie, as his physician. he had a lot of trust in me. and he listened to me. and i didn't really see him as a

giant. but after all of the things and the people and the comments, the accolades -- sometimes you don't realize how big someone is. and i'm certainly thankful to be among one of the giants. like iron sharpened irons, he sharpens one of us. i'm here with my brethren michael. we're not going to stand before you long. we've been here a while. but i will say that dr. hooks, uncle bennie, as i had a chance to work with him, he stripped down. to the bone. after the accolades and after the support and all the praises and the awards, he was a gentle man, and a loving man. he was never the kind of man that let you go without putting something in your hand. he always left a deposit. he was a seeder and a seed

sower. he seeded his service and his love. but above and beyond all of that, it was confidence and courage that kept him. he tried to die three times. the first time he had a heart attack. he was in louisiana, in new orleans, before katrina. and if it were not for pitt hyde who sent his plane to go over to get him he never would have made it. he told me i don't know why god is keeping me here. he says i know i got something to do. and he got right back into service. he got right back into it. the second time he felt like he had been electrocuted. you see he had a heart problem. he had a defibrillator. he said charlie, i felt like i was shocked to death. i couldn't leave here. i wanted to but it wasn't time. and then there was this last time.

where they called me at midnight 'cause, you know, they were night people. they never slept in the -- i mean, they slept all day but they were up all night. [laughter] >> they said i want you to come and see about bennie. and i said, i'll be glad to come and see about him. i went to see him. and i mean he didn't look good. i didn't think he would make it. i just said, i don't know. we just need to get him in the hospital. and he was in the intensive care. and it just looked like he would not even come out of it. but he came out of it. and i just said this man -- i just don't understand it. and he said, you know, charlie, he said i couldn't die then. i don't know what the problem is. [laughter] >> so the doctors got together and they said, he's peculiar. we don't know what to do. he's trying to go but god won't let him go. and then finally we had this conference -- we had this talk.

they called me in. and he said, you know -- he says out of all the things that i've done, he says i got a wonderful wife that loves me. i got friends and family members. i've done all these things. he says, but i've been fighting for a long time. i recognize i don't have to fight anymore. the battle is not mine but it's the lord's. he says i want you to know i want them to pull this and i want them to pull that. they don't have to be upset. i'm in my right mind. i'm ready. and he said i want you to know out of all you done for me, i want you to be ready. but let me go. so out of all the things that i gleaned from him with the courage to really face this thing and we all going to face it one day. we're going to strip down. it's not going to be anybody but me and the lord. but we got to be ready.

and it was that and that alone, you know, the bible says the sufferings of this present time are not worthy to be compared to the glory that will be revealed in us. he who glories let him glory. in the lord. that's where my uncle is. glorying in the lord. and i certainly thank you for the privilege and the opportunity to work and be a servant to him. thank you. [applause] >> good afternoon. first of all, to pastor hawkins, for allowing us to be here in your gracious spirit when we met with you that day. and all the clergy and friends

of dr. hooks and especially the naacp and the civil rights museum and the institute, dr. raines lending us melody and beverly and kim. barbara, we can't say enough of the pressure that you took off the family. pastor jealous and chairman brock, the people you sent in, dr. a.d. gibbons and reverend white and nelson rivers really came in here and took a lot of pressure off of us. [applause] >> it allowed the family to bond

together and reminisce and have fun. and first of all, we have a very competent, capable, applicable, accomplished family. any two of us could stand here and represent the family speaking. would you all please stand other than mother francis and mildred. and the elders. would you please stand. [applause] >> francis hooks did not sign on to do all this. she thought she was marrying a lawyer. [laughter] >> she didn't know she was marrying a preacher, teacher, lawyer, civil rights activist. and that his tentacles would stretch out all across this world.

but early on all the family, all of the generations followed francis's lead in realizing that he was very, very special. andrew and georgia dancy, his in-laws knew he was special. all of his siblings and all among francis' siblings knew he was special. bessie and robert hooks, his parents, knew he was special. all of the grandchildren and great grandchildren know that he was special. we follow that lead in sharing him and embraced it coveted it,

revered it. even at that, even at being the public the chairman, and on the board of universal and tristate and being a great jurist and going on to be a great naacp executive director and further than that bringing up the civil rights museum and his institute, he still managed to nurture families. with the help of francis dancy hooks, she made sure -- i know i can remember 55 years ago that the hooks and the dancys acted as one. therefore, stripping in this gene pool and having a family unit and nucleus that is second to none.

they embraced that kept, gave it to us. and i think families -- one of the things that we could do instead of mourning is realize that out of this group we could help the naacp. we could help the institute at u of m. we could help the children's fund, we can carry this torch on. it's enough talent. but one of the things he talked to me about last week that he was most concerned of that we would make sure that we gave aid -- that we went by to see. that we visited and gave service to his beloved wife, francis dancy hooks. [applause] >> and that it was enough of us

to see that mildred and raymond and ollie and janet seymour -- there's enough of us still in town, lawrence and eric, to go by and see your mom if she needs something. amber, andy, it's enough of us in town to make sure that all that burden doesn't go on andrea. vicki denise, it's enough for us to help. he wanted that. he told me that. that's what we can do. i'm sorry, guys, we've been through all the accolades. but i want to do one other thing. you told us what he thought but -- what you thought about him, reverend mason, reverend flowers, all of you, dr. gray.

ms. dukes, russell, beverly, pitt, let me tell you he loved you guys. [applause] >> he talked about you guys. in closing, i want to talk about the experience of how i feel that we as a family, us as a unit should remember a scripture. do not let your heart be troubled. believe in god and believe also in me. in our father's house a many dwelling places. if it was not so i would have told you. because i go to prepare a place for you. if anything and prepare a place for you, i will come again and receive you to myself. that where i am, there you may be also.

let me tell you, francis, guys, ben didn't leave us. he didn't leave us. he didn't leave you, honey. he just went ahead of you. if you believe -- now i believe it has to be some kind of hierarchy of angels in heaven. and i believe that ben hooks has been called upon to help assist in that preparation of that place. and then the annex and tone of what he might say to us is that i believe that he's there for the sole purpose of helping and assisting his believer in bringing us to him. ...

>> a generous man, a caring man. illuminated by faith. god bless you and be happy. because it's a glorious day. [applause]

>> now live to a discussion on digital money and the future of electronic payment. as the popular cash and checks continues to decline, a discussion held by the american enterprise of institute. live coverage here on c-span2. >> my name is alex brill and i'm a research fellow here at aei. our conference this morning is about digital money. before i introduce our keynote speaker, i'd like to take a minute to set the stage for the topic. this conference is about a portion of our economy that affects all of us every day. but outside the economist that study this issue, the regulars and lawyers that practice in this area, and the executives who lead this industry, this topic receives little attention. but, in fact, it permeates our

economy. how we pay for things we buy matter. but naturally we focus more often on the purchases themselves. similarly when we're in a car or on a plate we focus more on her destination, getting home for work, for example, that on armies of transportation. but just as i wrote system in real system and air traffic control system are important, in fact, vital to our economy, so it's our payment system. it too is part of our infrastructure. in fact, making payment is simply transporting money. in the transportation sector technology has help to address the problem of getting ourselves and our things to other places as efficiently, quickly and safely as possible. take for instance, the global gps system. these satellites have been deployed for decades but only recently has technology become accessible and popular and affordable with consumers. in a payment system technology

has also reduced costs, setup transaction time and improved convenience. task at check in the pot of as cars and buses traveling on the streets and highways. credit cards and debit cards perhaps high-speed rail. but while cashing checks serve a purpose, there are inherent inefficiencies associated with it. credit cards and debit cards are certainly imprudent in many ways, and i think we'll learn more about that this money. but limitations exist there as well. of course, we cannot be unaware of the inadequacies in our current transportation sector, poor road services, limitations and mass transit, to name a few. and as congress delay's action on the highway reauthorization ortation and the gas taxhhwtran are helping or hurting our infrastructure network to modernize. response to these limitations, the means of transportation, are shifting. they are becoming more diversified, and they're becoming more digital, more

electronic. go to meeting.com videoconferencing and webinars are always to be somewhere else without leaving the office. amazons kindle and apple's new ipad are tools for transporting books into our hands without leaving our homes. these means of virtually conducting business, spare us the extra time and inconvenience of physically traveling. in the same mode, digital money, products like paypal, billy later, cyber source and other new technologies are ways to pay safely, efficiently and conveniently. in considering technological trends in a payment system, this conference this morning we'll focus on digital money in particular, and the associated policy and regulations that we need to consider or avoid. we are fortunate to have a great group this morning. including joshua floum of these authority of a keynote address at a panel of esteemed experts. geoff gerdes from the federal reserve board, robert balanced

from the law firm of schwartz & ballen and wayne abernathy of the american bankers association. josh floum is group executive of these and corporate and is responsible for global government relations for the company. is a member of the executive management team and sits on these is governing operating committee. he has primary responsibility for advising management and the board of directors on global competition, legal, and regulatory matters that he is the companies principal voice on competitive issues and a frequent traveler to washington to engage in his medic after his presentation, he will take a few questions from the audience and will have another opportunity for q&a after the panelist presentation as we'll. josh, it's a pleasure to welcome you to aei. [applause] >> it's a real pleasure to be here today with this distinguished panel, talking about the global evolution from

paper-based currency to digital currency and the role that governments can play to encourage and accelerate this shift. i'm proud to say that we work with government agencies in many countries around the world to help them drive efficiencies in their operations. everything from cutting the cost of purchasing aircraft parts to streamline the distribution of child support. while we agree on the importance of digital currency, we don't always agree on its execution. but before i go into details on these is a vision for public-private partnership, i'd like to take a step back and consider the truly transformative nature of digital currency. i admit i am biased but i believe there's a strong case to be made that there are few innovations that have so fundamentally change basic aspects of social and economic behavior that they can truly be called transformative.

the emergence of mobile committee patients is one example. the cell phone has affected the lives of the vast majority of people on this planet. people at virtually every income level in virtually every part of the world enabling them to connect with one another more affordable, securely and reliably than ever before. the internet, of course, is another example. the web has put previously unimaginable quantities of information at the fingertips of literally billions. and appropriately, we as a society dedicated a great deal of time and attention to thinking about, discussing, analyzing, and debating the future of these technologies. volumes have been written about how mobile technologies and the internet have transformed almost every aspect of human life. but i would argue that the ship from paper to represent a similar transformative devolution. yet it is one that has taken

place with remarkable little notice. let me take just a few minutes to try to amplify what i mean when i talk about transformative nature of digital currency. think about how e-commerce has transformed our lives. in india, for example, visa cardholders can buy train tickets online in a few moments instead of standing in line for up to six hours to buy a ticket in person. or you can hop on a plane to europe and pay for your hotel, meals, even taxis using your card without having to exchange currency or stand in line for hours at a foreign bank. i don't know about you, but i'm one person who does not limit the passing of travelers checks. so what do these in those of similar anecdotes bobble up to? how do we quantify the broad economic tide of digital currency? a recent study by moody's

economist.com commissioned by visa concluded that the digital currency debit and credit card usage contributed an incremental $1.1 trillion to the global economy from 2003 through 2008. that is an income of $1.1 trillion. but where does this by you come from? essentially, three areas. first, digital currency means consumers have more convenient access to resources. it's hard to overstate how transformative that access to resources is in terms of consumer spending behavior. for those of us who've lived with payment card for most of our lives, it's easy to take for granted the freedom that comes from not having to constantly consider whether you have enough cash in your pocket to pay for a purchase, or to reconsider a transaction out of concern for the hassle of writing a check. but those limitations have historically been a major source

of transaction friction, which translated into billions of dollars in lost spending. digital currency acts as a lupica for transactions large and small across the economy. for example, in new york city, especially manhattan, the iconic yellow cab is a constant site. there are some 13,000 licensed cabs transported millions of passengers around town every year, and taxis are the cornerstone of the city's transportation infrastructure. making it possible to keep a place as densely populated as manhattan moving efficiently. they are also the source of employment for thousands of people, and a business where constant handling of cash has historically been the only way to earn a living. where drivers, that meant having to care enough cash at the beginning of each shift in order to make change for passengers. but beginning in 2004, taxis in

new york began installing card readers in the passenger areas of cabs and today, all 13,000 taxis in the city have the readers on passengers to use digital currency to pay for the ride in a matter of seconds. that means no more fumbling for bills or side trips, to the bank for change and more efficiency for taxi drivers and their consumers. this is, of course, just one small example. but multiply it by hundreds of thousands of cab rides, tens of millions of copies and quick service meals, and book purchases and movie tickets, you get the idea. and now, add that to the trillions of dollars of transactions that take place online, transactions that are only possible with digital currency. and you begin to really understand how access to resources online and off is a profound driver of economic growth.

the second key contribution to digital currency makes to economic efficiency is in the reduction of grey market transactions. the fact is that cash transactions do not leave any record if a merchant chooses to conduct their business quote unquote of off the books, using cached as a simple means of ensuring that tax collectors will struggle to piece together the evidence. there is a recent shady operations are referred to as quote cash only businesses. digital currency makes it far harder for transactions to take place off the books, and as a result, expands legitimate economy and the tax revenues that can be collected on legal transactions. while this value is relevant around the world, it is particularly important in emerging economies with deeply entrenched great economies. it is also increasingly relevant issue to governments around the world, as post recession tax revenue shrinks.

bringing those billions of dollars in transactions into the economy, not only leads to increased tax revenues for public use, but also allows for better statistical gathering, improved consumer regulation, and a wide host of fundamental benefits that the developed world may take for granted, but that are vitally important for sustainable development in emerging markets. finally, and most importantly, digital currency increases economic efficiency by bolstering confidence for both merchant and consumer. it's a little difficult today to recall a time when check bouncing was a massive source of lost to merchants, banks, and consumers alike. but that wasn't the case that and indeed, bounced checks continue to be a source of millions of dollars in losses two merchants each and every year. digital currency farce it eliminates those problems,

inherent in digital system is a guaranteed two merchants that they will receive payment, even in the event of a consumer default on credit, and consumers are guaranteed liability protection from fraudulent purchases on their cards. never was this more important than in the hopefully soon to be ended economic crisis, but certainly the ongoing economic crisis. while consumers can struggle to get by during the downturn, financial institutions -- excuse me, financial estimates like credit cards often bridge the gaps when times were tough. goods and services were sold, merchants got paid. instead of a bounced check, merchants received guaranteed payment as part of their contract for accepting credit cards. the billions of dollars in losses absorbed by the financial industry during the downturn funded merchant businesses,

large and small. had those losses been absorbed by the already suffered merchant industry, the results might indeed have been catastrophic. and while those losses to financial institutions were surely painful for their businesses, and a significant challenge to the overall economy, a magic the alternative, the breakdown in confidence between buyer and seller. in retrospect, there is no doubt that the digital currency system proved far more resilient. certainly, digital currency cannot eliminate all threats to competence. in particular, fraud and theft are constant concerns that cannot be entirely eliminated. but by protecting both the buyer and seller from serious personal risk, the digital currency system creates a safety net of confidence that allows the economy to run more efficiency -- efficiently. the shift creates value.

it improves efficiency and makes economies more dynamic and more resilient. but what is truly so exciting to me about the digital currency revolution is that we have really only begun to scratch the surface of that value. today digital currency represents a little less than a quarter of all global transaction volume, with cash and checks still by far the dominant form of payment worldwide. but the trend lines are pretty clear. between 2003 and 2008, card-based transactions grew by 13%. over that same period, cash transactions fell from 50% of all global transactions to a about 40%. put it simply, with this trend represents is the collective choices of hundreds of millions of consumers and merchants in virtually every part of the world, making a choice to shift

an increasing share of their spending on to digital currency platforms. and in much the same way as mobile phones are being used in innovative and sometimes surprising new ways by businesses and individuals around the world, so too is the digital currency. unlocking value in all sorts of unexpected ways around the world. here in washington, the u.s. federal government is finding that utilizing digital currency purchasing cards for procurement is leading to savings of $1.7 billion a year, according to a study by the gao. in states like the brascan, direct aid programs where citizens are reducing the perch for disturbing funds by about 59 cents by using reload will cards rather than mailing checks. in developing countries around the world, microfinance organizations like finca are

partnering with easy-to-use digital currency to help even the smaller merchants in the most remote areas, tap into global markets and efficient transaction systems. and in pakistan, in the wake of fighting that created over 1 million internally displaced persons, digital currency which used to make a disbursement faster and more accountable. knocker, the pakistan national identity agency, it listed the help of united bank limited, one of the largest full-service banks in pakistan, to devise a way to get funds to refugees that have fled the north west frontier province to escape areas of armed conflict. the united bank limited work with the agency to issue visa prepaid cards at sites continued to refugees that allow them to buy much needed supplies such as extra food and other necessities. in addition to enabling it to disbursements quickly, the choice of visa and its network

and sure tragedy that could account for every penny and financial aid, and to make sure that went to the right individuals to provide the right benefits. the situation in pakistan represents a true innovation. and it is just one example in one country and based on one digital currency platform, mainly visa's. and other markets with assembly challenges such as haiti and cuba, visa is in discussion with our clients and government entities on establishing a similar infrastructure to the one in pakistan. we are eager and committed to replicate our success in pakistan, so financially, underserved people can access their resources quickly, conveniently, and securely. and while i am hardly modest about visa's own ambitions, the fact is the digital currency space is rapidly becoming more competitive with new entrants

around the world developing smart new tools to transfer value. that competition is a vital and healthy part of the digital currency dilution. and it brings the to the issue of what role government can and should play in the future of electronic payments. protecting fair market-based competition is clearly an important role that government should play. enforcing the laws that are on the books in ensuring an environment in which small upstarts and established players can compete on a level field ultimately benefits all stakeholders. a corollary to the principle is that government must resist the urge to put its finger on the scale in the marketplace for the benefit of any particular participant in the system. the clearest caution there he tale here is australia. i have spent a lot time in the country in the last several

years speaking with regulars in the central bank and the reserve bank. they are the reserve bank decided to intervene in the marketplace at the behest of merchants, and essentially imposed government price controls on transaction fees associated with the card use. the regulator also freed merchants to impose surcharges on consumers who use their cards. the attention of these regulations was to lower prices for consumers on the theory that savings from reduced transaction fees would be passed onto the customer. but the experience has been quite different, unintended consequences ensued the opposite of what the regulator sought to achieve actually occurred. by the regulars own assessment, prices have not gone down for australian consumers. but annual fees on cards have gone up, benefits have been reduced, and many merchants, including australia's flagship

airline, qantas, have imposed fees on consumers at checkout for using their cards. and consumers are not happy. the bottom like is that this experiment in government management of digital currency has a generally harm to consumers while creating no clear social benefit. the lesson of these expenses is not that government has no role to play, but that it must recognize the inherent risk of upsetting delicate market forces. and certainly, government has a role, a vital role, to play in keeping digital currency secure. to be sure, the burden of network security must be born first and foremost by digital currency networks, including visa. we are investing hundreds of millions of dollars to make our networks among the most secure and robust in the world. we are working with merchants and others who handle consumer

data to harden their systems, and ensure compliance with industry security standards. and we are constantly seeking to educate consumers about steps they can take to keep themselves secure. but ultimately, criminals, fraudsters, terrorists, hostile powers in other threads will always be there. and so government and industry must work in close collaboration to ensure that our vital networks, including our digital currency networks, are secure and that cripples are aggressively pursued and brought to justice. in this fight, the stakes simply could not be higher. according to that same movies economies.com study i mentioned are there, everyone% increase in digital currency transaction volume translates to about two and half basis points, 2.4 basis points to be exact, i think increase in local gdp growth. let me say that again.

so every 1% increase in digital currency transaction volume translates to about two and half basis point increase in global gdp growth. given the secular trend in the past decade showing annual average growth of 13%, we are seeing a contribution of 38 basis points in gdp growth, just through the increased economic efficiency that comes from expanded card use. these trends are the very definition of progress. these trends are the statistical expression of men and women around the world who can enter a higher quality of life, who can build a business, who can make choices as consumers, who can benefit for more responsive transparent government services, and you can feel more confident and secure, thanks to the technology -- technological evolution that is slowly but surely changing the world. so long as they called in the

system continue to recognize and appreciate that value, and ensure government policies that nurture its expansion, then this value will continue to grow. that is a topic that deserves and demands our attention. and it is in that spirit that i am so pleased that aei is hosting today's discussion, and what i hope will be but one of many such forums in the months and years to come. thank you very much. [applause] >> thank you, josh. we have time for a few minutes, folks to raise their hands. we have a couple of people helping us with microphones. when the microphone comes to you, don't start till the microphone comes to. least state your name and your affiliation, and please do ask a question. in the back here, please. >> my name is jo freeman. i'm a senior scholar at the woodrow wilson center. having been, watch this

transition, i am concerned about how it affects the consumer, and that's what i would like you to address. i have seen the increase of automatic debit i places that you might normally write a check for every month, when you're writing a check you could decide whether to write the check, and if you cancel the service you would not write the check. but i've seen in a lot of cases where you give a copy permission to do at. [inaudible] debit. they do it every month whether you want them to or not, whether you have the time to fail or not, whether you have canceled the service or not. and i haven't seen any protections against that happening. can you please address that? >> i would be happy to. even though at visa, our clients and customers are financial institutions. we are acutely aware that the end-users of the products that we facilitate, merchants on the one hand and consumers on the other hand. so we wake up everyday thinking

about how our products, how our services can benefit consumers and enhance their well being. i think that digital currency has brought incredible value to consumers. imagine when the days were that you had to walk into a store with only cash or checks as resources available to you. cash can be stolen. cash cannot be enough to support what you intend to purchase, once you arrive at a retailer. checks and balance. you can buy something that is not what you intended and you have no recourse. and so with networks like visa, they provide a consumer with instant access to credit, or instant access to his or her own dba account that if you buy something that is fraudulent, if you buy something that is not what you intended, you will not have to pay for it.

that in and of itself is an unbelievable enhancement to how things were in the past. if someone steals your card and uses it, you will not be liable whatsoever. we think that it also enhances the speed of the process. you're promising so far at about speeding to the checkout line, perhaps a bit of hyperbole but you do get the point that it increases efficiency. it also increases your ability to keep track of your records. with respect to your particular question, about automatic debit systems, those are things that you can set up with your financial institution and with the appropriate merchant. my understanding is that in most of those situations, if not all of those situations, the consumer does have the ability to cancel the automatic deposit or debit service. now, that's not something that we do. that's something that's between

the financial institution and a merchant that but we do not at visa condone any kind of deceptive or unethical practice on the part of any of our members or end-users. and so if there's an instant where that's a problem for a particular consumer, i suggest that he or her contact a financial institution and make very clear the instructions regarding any kind of automatic debit program. . .

>> it's questionable whether it belongs in the plus column rather than the negative column. >> i thank you for that question. i believe that what we do is we provide a consumer with choices. among those choices is whether to extend his or her own credit facility beyond what might have been available otherwise. i think in terms of how the consumer uses that optionality is a legitimate question. and i think whether a particular consumer overextends him or herself is a very, very serious issue. but i'd also say that we're very proud at visa that we really pioneered the debit category. you hear a lot about interest rate practices, overextension of

credit. some of the things that you are mentioning. and at visa we were the first to get into debit in a big way. and as i think everyone is aware, debit is simply access to your own dda account funds that you have so that really mitig e mitigates overextension of debit. overextension of your own credit. i should say by access to your dda account and debit doesn't carry with it interest rates and the types of fees that you see with credit. so we think the debit category is a very, very important part of our business globally. and just this past year in fact our volume of visa transactions in debit exceeded credit for the first time ever. so we used to think ourselves as a credit card company. we longer do. we are a digital currency company and debit is a huge part of our business. >> thanks. >> burt?

>> we'll go to the gentleman next to him afterwards. >> burt, a banking consultant. i'm a great fan of electronic payments. i try to set up as many automated payments as possible. but i've run into three instances in recent years which suggest actually in my case a move back to cash as the green stuff. and my question relates to what the credit card companies are doing to deal with these three little barriers i see. number one, the search arches on foreign currency transactions, when i go to europe now i pop euros out of the atm every couple days rather than subjecting myself to, i think, it's a 2.8% surcharge. so number one, what's going to be done to get rid of that? number two, new york taxi cabs -- it takes longer to get out of a cab when you're charging -- i gave up on the

credit cards and i just pay cash like i used to. number three, i'm running into more retail outlets on small -- of course, many don't take amex but they will take visa and mastercard but more and more i find a strong preference for currency because of the expense -- the discount expense of a credit card transaction. so my question is this, what are the credit card companies -- well, excuse me, the digital currency companies doing to overcome those specific barriers to using those cards instead of the green stuff? >> well, thanks for that question. i think that in respect to traveling abroad and getting cash, whether it's euros or bot or what have you, that, for example, using your card in an atm machine is the least expensive way for you to do that.

remember the days of traveller checks. remember the days of exchanging cash? people still do that. but digital currency is the least expensive of those options. and so we're very optimistic about continued growth in that sector. all i can suggest is shop around. it's a very competitive environment. in the united states alone, we have something like 10,000 issuers. there are many, many acquirers. if you happen to be a retailer, shop around. for the best deal. it's a competitive market. now, my experience in new york cabs must be very different from yours. i just give them my card. they swipe it. i'm out there. i'm not aware some of them were slow. i thought they were incredibly fast.

and then with respect to merchants imposing surcharges, we are extremely adamantly and passionately opposed to that. merchants should bear appropriately some cost for accepting digital currency. it drives tremendous benefits to them. there are some merchants who would like a free ride. and would rather not pay anything for digital currency. again, this is a competitive market. and you have to balance the benefits they receive with the cost to them. and make a judgment about whether it's fair. i think it's extremely fair. some merchants try to steer towards cash by imposing surcharges at the point of sale. that actually violates our rules. and we have those rules for a very good reason. which is that surcharges harm consumers. we care very much about consumers. we don't want to impede the ability of consumers to use

those cards. and again we think those cards deliver tremendous values to merchants, which far exceed their relatively modest costs. >> thanks. i want to take two more questions. my own and the gentleman in the back. and let me just ask mine and then we'll ask yours and josh, we can respond together. you mentioned the regulatory charges in australia and what happened there. i'm just wondering as a multinational corporation looking at your business activities. how are things here in terms of the penetration rates of digital money and activities? versus elsewhere in the world? where are the most amounts of digital money and the fastest growth and how are we stacking up? but let me also take the other question. >> i'm with the african development center.

my question i'm originally from nigeria. if in the continent of africa it's very difficult to use any of these credit cards. that creates an economical blockade. if we are looking at a global rate of over a quarter in the industry, how do we in africa able to access this system so we can get in the global economy? >> thank you for both of your questions. let me try to answer yours and then i'll answer his. by far the biggest penetration and the most widespread use of our products is here in the united states. this is where we were born. we came out of the bank ameri card and we have the largest product suite. however, our growth places where we are growing the fastest tend to be in places like asia pacific, latin america.

so when you look at something like australia where the regulators took in my view an extremely ill-conceived course that they have thus far refused to back down from and you look at the empirical data -- what the reserve bank of australia thought was by artificially suppressing interchange it would somehow benefit consumers. and they were also hearing from the very few because in australia the merchant population is fairly concentrated merchants who said, what we would like you to artificially lower our costs. well, they did artificially lower the costs to the retailers. the retailers in australia are paying far less for digital money than others around the world. those retailers didn't lower their retail prices. they didn't provide extra coupons. they didn't provide gift wrap

paper or anything of the kind for consumers. so consumers in australia took it in the shorts one way, if you will. and then secondly, the rewards portions of the card was rolled back. the fees were increased. so consumers got hit a way in australia. so i am very hopeful that over time we'll be able to reach some accommodation with the reserve bank to step back from regulation. they've indicated at one time they were interested in that although i haven't seen a lot of progress over the last couple of years. now, let me turn to the gentleman's question in the back about nigeria and africa. it's true in many parts of the world particularly in developing countries, the card is mostly a cash access device. it's mostly a way an atm device to get cash. debit is really in infancy.

the gentleman here alluded to the positive and negative aspects of credit particularly for people who are not of great means. and don't want to get in a situation where they may overextend credit. debit is a perfect means of driving growth, an engine for growth in places like africa and in places like central europe. in places like latin america. so we at visa are very committed to growing our debit infrastructure in africa. we are now a global public company. so we look at everywhere around the world. and we try to allocate resources. and i can tell you, sir, africa is a big priority for us. >> josh, thanks very much for joining us. >> thank you. [applause] >> i'd like to turn right away to our distinguished panel who's with us this morning.

i've asked each of the panelists to speak for 12 to 15 minutes. and we've got a nice diversity. and i'll just introduce them very quickly and we can begin. geoff gerdes is the payment section of the federal reserve board. as lead economists in several major studies in payment conducted by the board he has the primary responsibility for analyzing trends in noncash payments in the united states. >> bob ballen, in the middle -- he's the founder of the the law firm schwartz and ballen. he recommends many insurance companies and securities firms and advises clients on financial services, law, and regulation. previously in the early '80s bob was in the general counsel's office of the federal reserve board and was responsible for counseling the board on legal issues arising in connection with payment activities including fed wire, check collection and the automated clearinghouse services.

and bob is past chairman of the aba's payment subcommittee. to my immediate right, wayne abernathy has been the executive vice president for financial institution policy and regulatory affairs at the american bankers association since february of 2005. at the aba wayne oversees the aba groups that deal with policy development, regulatory issues, bank, economic, security investment and risk management. before coming to the aba, wayne served for two years as treasury assistant secretary for financial institutions. and before that, served in a number of positions at the senate banking committee. we're going to start with geoff to give a little bit of the economics overview. and we're going to proceed this way down the line. geoff, thanks. >> good morning. i'd like to thank alex and aei for inviting me and other distinguished panelists.

i'm going to step back a little bit from the discussion from joshua. and give us some background on the u.s. economy and the way the payment system fits into the u.s. economy. and first i'll give you an overview of what we're doing. and alex has done a good job telling you about me. so i will follow up with his comments and point out that my opinions are my own today. and don't reflect opinions of the federal reserve board. moving on to key messages, as i figure out how to use this device. first, it's pretty clear that technological innovation has dramatically changed the u.s. payment system over the years.

we have new ways to initiate payments and new ways to initiate them coming online all the time. each of these instruments has different properties. the properties of these instruments affect choices. and as new instruments get introduced, it's important to keep in mind that the convenience and the risk tradeoffs associated with them change. there are factors that affect all of this, obviously. and, you know, i've listed technology clearly as the important thing and the digital money conference. but the preferences of the users -- both today we're talking about what we at the fed call retail payments. we're not really talking about interbank payments or very large payments. preferences of merchants and users are very important.

there's also person-to-person payments, options available today. beyond the traditional check and cash that people have always been able to use. and obviously regulations, policies, industry practices, just what people are used to will have an effect on where we can go and do next. it may not be an immediate transformation to a whole new world. and also one of the major points that i want to bring up is that the infrastructure, the electronic infrastructure of the world has really, you know -- we've come into the computer age. the payment system is following our ability to use computers in all sorts of different ways and it's intrical to that transformation to the digital age.

okay. and on the next slide, i'm just going to step back as a central bank economist i'll point out a couple of things about money. but there's a lot that could be set and i think i'll not spend a lot of time on it. but, you know, reminding people money is a medium of exchange. it's a unit of account. it's a store of value. there are a lot of different functions of money. and, of course, we're talking about currency. everybody is used to the use of currency and coin. they have different properties. for a long time economists have recognized that bank deposits can be considered money as well. and today i'll be talking about noncash payments which almost universally access some kind of deposit account. there's also this concept of electronic money or some kind of digital token that could exist

on a card. and perhaps if the card is lost maybe that digital money could disappear. and that's a technological issue that we may overcome and it's been discussed for some time. and we'll see how things go in that area. but for now i think we're still pretty much accessing bank accounts or some liability of a nonbank when we're using these payment systems. so i'm going to move on to the idea of a payment instrument and talk about the payment instruments that we use to access these deposit accounts. and give you an overview now -- and it's going to be difficult to read. i'm sorry to say. but these are the results of the most recent federal reserve payment study. we do this study every three years.

we've done one for 2000, 2003. and these are the results for 2006. and in these studies we devote a lot of effort to get a complete national picture of what is going on in the u.s. payment system. so to start off with, the total number of checks written in the united states was about $33 billion, and that's out of about 93 billion payments noncash payments. so even in 2006 we were talking about a third of all payments were made by check. secondly, it's pretty clear that the debit card has been the huge success story as josh had pointed out.

by 2006, it had overtaken credit cards as the most used electronic payment instrument. and cards collectively -- when you count the credit cards and the debit cards actually amounted to the largest payment instrument used in the u.s. economy. but by value, checks were by far the largest payment instrument when you exclude inner bank wires. it's about $42 trillion went through the payment check system. and by comparison, the electronic payment system was about 34 trillion when you add in not only credit card and debit cards but also the

automated clearinghouse system which is replacement for the check that was introduced back in the '60s, which provides a check-like clearing system in between banks. and it's what people are used to using, for example, if they receive a payroll check that's directly deposited to their bank account. and there are other uses of it as well that have driven the growth of ach. so this chart here just shows the -- more detail about the changes. i think next time i do this i will probably narrow in to some larger font. [laughter] [inaudible] >> that's right. and this is available online. the debit card from 2003 to 2006

was responsible for more than half of the growth in the noncash payment system. so that really is another way to look at how influential the debit card has been. in recent past. now, just to step back a little bit more. take a longer view of the transformation of the payment system since checks and cash were really the predominant kind of way of making payments. this chart shows from 1970 on each bar represents when we've done payments in the economy during those years. so what you see there is that the orange bar portion of the bar is checks by volume per capita in the united states. and you see that it shows that

it peaks somewhere around 1995. and has declined ever since. in the meantime, you see electronic payments have grown. and by 2006, again, electronic payments by number are about two-thirds of all noncash payments. well, so much of the credit card growth, debit card growth and automated clearinghouse growth has been driven by replacement of checks during this time. but there are other effects that you can see going on in this chart. first noncash payments have more than doubled. there are lots of reasons -- the most intuitive reason i think for this audience would be perhaps cash has been replaced. i think that's a reasonable expectation.

there are others that have driven the noncash payment system clearly rising wealth and income has made people richer, changing process methods may have caused some transactions to generate other transactions. for example, when people use their credit cards, then they expect the bill at the end of the month and they are going to have to pay that bill or, you know, over time. either way they're going to be paying that bill with probably a check or using the ach system. another point is that, you know, payments may have simply risen because we have more opportunities to outsource as our household production functioned back in the old days,

reading "little house on the prairie" with my son back in the old days people used to churn their own body. -- butter. these days we probably purchase it. people used to sew their own clothes and/or they bought them in the open market and now you have to have a payment system to do that. okay. moving on to the next slide. a little bit more of a focus of what we do know about cash. and one point, it's pretty clear as we use cash, it's anonymous. it's distributed nature of the cash payment system, there's no way to be able to measure all the cash payments. so rather than displaying a flow like i've been showing on the other chart, this chart is showing the stock of currency. this is not all currency. and this is on a per capita basis dollars per capita real value over time since 1960.

and these -- what i call the transactional denominations excluding 50s and 100s in the united states. typically, people do not use these transactions. focusing in on this, what we do see there was a decline of stock of currency probably influenced by the use of checks and followed by additional use of cards. but then more or less the stock of currency per capita has been flat. you see that little blip there. during the millennium bug period. there was some concern that the electronic systems would experience a problem. and for that reason, banks held extra stock of currency in order to facilitate commerce in case something happened and nothing happened and they returned the currency to the fed, no problem. in any case, it's pretty clear

that the replacement of cash is occurring. the federal reserve is the issuer of currency. and has to print money and reprint it as it wears out. we have ways of tracking the wear and tear of currency. there's evidence that small denomination currency is lasting longer than it used to. there are a variety of factors that could affect it but some of them could be just the simple wear and tear of conducting transactions. it's possible, although not conclusive at this time that individuals may be holding a steady inventory of currency but simply just replenishing it less often. but then, i think the jury is still out. we need to learn more to be clear on how much currency actually being replaced. next, i wanted to sort of talk about a case study of debit

cards. stepping back again for a longer view. these were -- debit cards were issued first in the former as atm cards. and they were essentially meant -- they were a network but they were thought of as a bank's own network of atms. and this was for their customers to access currency. this was really the first and only payment system and i'll get into a little more detail in the next slide. that has really been purely electronic from the beginning. and ultimately merchants started installing terminals to be able to accept these cards. but for many years, even though some options to use these were available, they were not very broadly available to the general public.

and it wasn't really until, i think, mastercard and visa came in with their branding and getting into the debit card scene at around 1993 when we saw the number of terminals start to increase and when the numbers of terminals started to increase, card payments followed. so i think a number of us felt confide surprised when they saw the surge of debit cards initially and the use of debit cards. and i think this chart seems to display -- it really had to do with whether they were available to people to use. and i think some work that i have done has shown that it spread from network to network kind of from the west coast to the east coast. and they are different. and as people saw they could use the so-called check card, they

started using it. so messages from history, first existing payment types evolve. all a of these electronic payments that we have today used to have some component of physical processing except perhaps for debit cards. the ach began a computer tapes. the federal reserve was heavily involved in the initial startup of the electronic ach electronic for checks in the 1960s. this was able because the fed was able banks to organize and facilitate the movement -- or, you know, collaboration. and also it was because they had big computers and could process things. but still these local ach

associations settled within the local fed. and then the computer tapes were sent between fed offices on airplanes along with checks as they were being flown around the country. so -- but i think that was what was available at the time. and it was an incremental change. that was worth doing. credit cards, of course, have been around actually -- since around the turn of the century. and i don't know if the largest -- or the first major retailer, i think, that issued a credit card was montgomery ward way back at the turn of the 19th century. but, of course, these credit cards were really an alternative to, you know, keeping the books in some other way. it's a way of issuing store credit. the general purpose credit card, of course, is what has really become the big transformative type of credit card.

i won't go into a lot of detail of how those were introduced. it's a very interesting story. but essentially the general purpose card replaced merchant credit with bank-issued credits. this is what banks do. they finance things and merchants don't necessarily have the cash to do it. it was certainly a great deal for merchants when it first started out as an option. if you didn't have the ability to issue credit to your customers. in any case in the '70s, that was around when visa began to electronicfy its systems. initially some folks in the audience may remember credit cards were run through paper imprint machines. and then merchants would actually stuff envelopes and mail these envelopes to banks and then things got sent through the postal mail actually.

that was not a very efficient system. they asked the fed, which had a very efficient check-clearing system, paper check clearing system, to bring credit cards into that system. and the fed refused. that really spurred private sector development, i think, of the electronic payment system. and even so, it took a long time for that system to get dispersed throughout the economy. and there are many merchants that were still -- that last mile of connecting the merchant to electronically to the system was still too difficult at the time. and yet the cards were out there. it was really in the 1980s when electronic -- or credit cards became a fully electronic system. [inaudible] >> okay. thank you. yeah, i was afraid i would spend too much time on these slides.

and bob is going to get into the check clearing system and the fact that's become very electronic. i'm going to step back a little bit. people are thinking about the financial crisis. and we thought it would be useful to take a look at some -- and it's very difficult to read again perhaps again for some in the back and on tv but it will be available on the website. but this shows public information on quarterly volumes by dollar value for credit cards, debit cards, checks processed by the federal reserve and network ach. so that doesn't include ach that's processed within banks. it shows in the gray area you see -- this is when the nber has identified when the recession began in recent -- so that would have been about 30 quarter 2007. and you see that pretty much all payments have experienced a drop in growth.

this is the growth rate. so when you see the drop below zero, all of those payment instruments have really experienced the negative growth rate, meaning that people have retracted their spending. what's clear here -- if you can read the chart is that the little -- it looks like pearl necklaces are the debit card payments. and the debit cards did not dip below zero. they stayed in a positive growth. but also see by the end of 2009 all of them seem to be showing some kind of recovery in terms of spending. finally, i think i'll -- except for a couple of points, i'll end pointing out about with our international -- the balance of electronic payments and paper clearing in developed countries.

and i have japan, the european monetary union. i've got united kingdom, canada and the united states. and largely, all but japan show a very high acceptance of electronic payments. this is again is in per capita figuring. the u.s. has a very high additional number of noncash payments being made through the check system. and really this can be explained, i think, by the relative -- obviously, maybe there are a wealth of differences but it's also perhaps higher use of cash and other -- in other countries as well. particularly, japan, there has had a very high use of currency historically. so i just figured i'd end with a little bit of a question. the u.s. card infrastructure is currently magnetic striped.

there are various technologies that are being touted as a possible replacement. replacement is difficult. and there are lots of issues to consider. but all of us should be thinking in the future likely magnetic stripe, like paper, will probably be replaced. how will it be replaced and when? and then i'd point out also internet commerce is actually pretty small although clearly for airplane tickets you're going to make a purchase online. but it is actually a pretty small segment of the economy still despite me and my friends and everybody i know using the internet, most of us are still using brick and mortar to make our purchases. and it's pretty clear as that continues to expand, new electronic methods will grow along with it. thank you. >> thanks very much, geoff. that was very interesting. bob, we're going to pull up your slide and the floor is yours.

>> thank you, alex. and thank you to you and the aei for inviting me and putting this conference together. i'm going to discuss the regulation and laws governing all of this. in 10 minutes or less because i know we want to keep time for the open discussion. so -- i'm going to cover this at a very high level. and if anything piques your interest we can draw down later in the session. certainly josh -- yeah, i got it. josh and geoff have really laid the groundwork here for indicating to us all the tremendous impact that technology has had on the payment system. and i'm going to talk a little bit about the regulatory challenges that have resulted from that technological impact. this is a very timely discussion because just a few blocks from here, congress is considering many of these very issues in the context of the financial reform

legislation that's currently being very actively considered. so very good timing on the conference here, alex. i'm going to talk about two things. product regulation, how one regulates particular products and entity regulation. and that's how one would regulate particular entities that are holding or providing those products. and i'm going to look at recent past experience again at a very high level. geoff alluded to it. the process by which banks collect the paper checks that you all right has basically in the last five years been converted from a paper process where at one point 60 billion checks a year are being flown around the country to now almost a completely electronic process. i'm going to talk very quickly about how we got there. and what the lessons, i think, of that process are. going forward. and then i'm going to talk a little bit hopefully we'll have

some time to talk about new technology of internet, mobile and what that is doing for the payments process and the challenges of regulating that area. so here we go. quickly. okay. the picture tell us a thousand words. or maybe more. here is a chart and i would like to thank david walker who's the president of the check clearinghouse organization which is the nationwide bank clearinghouse organization that basically in part made all this happen for these slides. so thank you, david. so i think this shows for you the average number of check images -- and these are the electronic transmissions of the paper check that are sent between the banks instead of the bank check, each day. and i don't know if the folks on tv can see this, yes? good. okay. but basically you see here on this chart that the average daily volume of images transmitted in the first quarter

of 2005 were the grand total of about 80,000 a day. in the last quarter of '08 you can see -- or i guess the first quarter of '09, about 59.57 million images of checks are transmitted between banks each and every day. here's a sort of comparable chart that shows the dollar volume, dollar value of those checks. again, at the top bar there, the annualized fourth quarter of the dollar amounts of the checks being transmitted between the banks instead of the paper. 17.2 trillion per year. that's about five times the sum of all debit card and credit card payments. sorry about that, paul. but look at that as a business opportunity. [laughter] >> and it's not just a few banks that are participating. here's a chart that shows the

number of routing transit numbers and the routing transit numbers are the numbers that each bank has that identify them in the check collection system that receive these electronic images. and you can see about 21,500 routing transit numbers currently receiving these images. here's a summary chart of what i just went through. i would only highlight here that the federal reserve and, geoff, maybe you made these estimates. estimates that the proportion of checks that they receive from the banks that send them checks, electronically through these images that i'm talking about will exceed 98% of their total check deposits by year end 2009. and they estimate 99% by year end 2010. and again, for the federal reserve sending those checks on to the banks usually that the checks are drawn on will have to pay those checks, they expect about 90% of those checks to be

done electronically by year end 2009 and 97% by year end 2010. and again, five years ago these numbers were like zero. okay. so what were the legal -- the law that made all this happen was -- and geoff mentioned it. is check 21. it was enacted in 2003. basically a little history 'cause i think it's interesting. the banking industry had been looking for some time now before that as the cost of data storage and data transmission was dropping. the cost-savings that they could result for themselves in sending electronic information instead of the paper around the country. and then 9/11 came along and no air transportation. no paper checks. payment system basically went into gridlock. and that, i think, along with

the cost-savings resulting from the advances in technology got everybody together to work on this check 21 law. it was a very collaborative effort with the federal reserve, bank industry, all sorts of stakeholders. and i'd like to call out particularly vice chairman roger ferguson then vice chairman roger ferguson and then and still the director of the division of reserve bank operations and payment systems. and i guess your boss, louise roseman for really working cooperatively with the industry. and i think this collaborative process is a great success that has worked in roughly five, six years since that act was passed. and i don't want to go through all the details of the act because we don't have time but i think the lezzons learned are very important. -- lessons learned are very important. what check 21 did is almost as important as what it didn't do. and it did not mandate for

anybody, banks, customers, consumers to use this process. it facilitated it. it put a legal framework in place to facilitate it. but it left it up to all the people that josh was talking about the consumers and the banks and the customers and the businesses to make their own decisions as to whether for them this process made sense. secondly, it provided baseline protections to consumers, which in my view is a very valid and appropriate responsibility for statute and law. but what it didn't do is it did not dictate the specifics of the interbank exchange, the interbank dealings, the bank to bank dealings. that was left to the industry to work out for themselves. and i think that was an extremely brilliant decision. because if that had been drafted into the statute at that time,

in 2003, i don't think we would have had the success that we had. and let me give you an example. everybody thought at the time that all the banks were going to do was exchange the information electronically and then the paper check would be retained and be retained later if some people needed it. indeed, all of the initial interbank rules were written based on that assumption. but then as more technology developed and costs came down and more thought was given to this, the process that ultimately developed was, no, the image of the actual physical check is what's transmitted between the banks not just information about the check. and all the rules then had to be rewritten. and they could be done very quickly. and if we had to then go back and rewrite the statute, if the statute had written the process into the statute and that had to be -- everything had to stop and

then go back and get congress to rewrite the statute, none of the success that you saw on those hockey stick slides would have occurred. everything would have been delayed while everybody went back to congress and went through the whole legislative process all over again. so the genius i think of check 21 in part and i think this is an important lesson as congress looks forward in terms of how to regulate new payments products is consumer protections, customer protections absolutely. but as to the interbank process for how all of this is going to be done and, josh, i'm sure you would agree with this knowing how often you change the visa rules that really should be left to the industry to work out as a flexibility and can try things, experiment and move quickly to accommodate new opportunities, new technology and not have to go back to congress or the regulators each time to change the rules of the game. that's my thought there.

and by the way, check 21 was a win-win for everybody. not only did we have hundreds of millions of dollars of cost-savings for the banking industry, not having to fly the paper checks around. customers are getting faster availability now for the checks they deposit literally all checks now because they can be collected electronically are collected faster. they're all considered local under the law and subject to faster availability requirements than the old nonlocal checks that were drawn far away and have time built into the availability process for the paper to get across the country. new products and services for customers. i don't know if many of you do this but i do it all the time. you can go to your bank online and see a picture of your check right away, copy it if you need it for some purpose. not available in the old paper process. obviously less susceptible to terrorist attack. not dependent on planes flying all over the country every night moving this paper around. great success. let me move on. how am i doing on my time?

[inaudible] >> okay. >> i can cover this in 3 minutes no problem. that was product regulation and now i want to talk about participant regulation. as josh and geoff have explained, there are all new technologies and communication channels that are enabling payment. we're talking internet. we're talking mobile. we're talking value. and many new nonbank payment participants have entered this market. paypal, a well-known nonbank, amazon payments, another example of a paypal-type product. you have content and payment aggregates. -- aggregators. i give examples of others that provide facilities for -- if you're into online gaming as my

kids are to purchase a whole panoply of online gaming. products from various merchants through their sites. you've got internet marketplaces, google, amazon, ebay, some names you may have heard of. cell phone carriers are now providing facility for you to charge things, not your phone bill. your telephone services but to charge things to your phone bill. verizon, at&t, for example. many, many others. all sorts of new types of payments and related services are being facilitated by this new technology. person-to-person payments. small dollar micropayment merchant purchases. itunes, prepaid transactions, bill payments. there was a question earlier about bill payments which we could come back to. social network, online gaming, digital currencies. okay. no banks. banks we know that are regulated. congress is working on redoing

that. but clearly they will be regulated. what about these new entrants, 10 or 15 i just listed in the last minute. i could multiply by 10 if i had more time. how should they be regulated? at all? and if so, how? should we worry about consumer protections relative to their customers? should we worry about whether they go away, go bust? certainly many of these startups have flamed out. should we worry about money laundering and what do they do with their data, customer data in connection with these payment activities. is that a concern? should we worry about whether they are facilitating payments to what the u.s. considers to be bad persons such as people on the prohibitive list, terrorist activities, organizations. worry about unlawful gambling. now the current regulation for

these nonbanks, if there is any, is mostly under state money transmitter laws. virtually all states license nonbank entities who vary genetically and broadly defined accept customer transfers to third parties. per the instruction of their customer. the requirements of the state statutes vary from state to state. but you see there on the chart typically require a licensed entity to post a bond in favor of the state in a specified amount which often is not very high. file periodic reports with the state to maintain certain books and records. to maintain specified capital and to limit their investments to permissible asset types, to undergo some state organization and pay special assessments to the state. is that the right regime to

regulate these nonbanks in the payment system? i just ask the questions. i don't have the answers. something congress is considering right now we can certainly talk about more in the open session. but i just wanted to raise that 'cause i think that's a key regulatory challenge that this new technology that we've been talking about will be raising today and going forward for both federal and state legislators and regulators. that's it. >> thanks very much, bob. [applause] >> thank you. [applause] >> and our third speaker, wayne abernathy. thanks. >> thank you very much. i certainly want to thank you for inviting me for being on the panel but especially i want to thank aei for demonstrating today being at the forefront of the public policy discussion and debate. and bringing scholarly tools to bear. all these important financial issues that affect everybody. but that need to have some real good scholarly thinking behind them before we make these public

policies. i'd like to introduce a couple of sets of evidence, if you will, or objects, exhibits, into our discussion. first of all, as this little thing i brought here with me. now, this is a dollar coin. it's in plastic. because it's uncirculated. it has been uncirculated since it was given to me a year or so ago and will remain uncirculated as i pass it down to my children. but this is a first exhibit. the second exhibit, i reach in my pocket is this piece here. this by the way is supposed to replace this one. and if you talk to the mint they'll give you enormously persuasive arguments as to why this is a much better instrument than this. but nobody buys it. they still like the paper dollar. second set of instruments that i'll present to you. i carry this. this is my checkbook. my wallet.

oh, and now this item here. all of these contain payments mechanisms. with any one of these or all of them together, i can make payments for a variety of different things together with, of course, of this and if i'm willing to break this out of the plastic i could make payments with that. now, these are important exhibits and i want us to keep all of these things in mind as we're thinking about electronic payments. because what we need to think about -- what we're talking about is the payment system. electronics just happen to be the latest innovation into the payment system. digital is one of the most recent. and it won't be the last. what will be the next one? i don't know. i would have invented it if i knew what it was. people wouldn't think people would use this to make a payment let alone to send messages back home and remind folks that the exterminators are coming by

today. now, as we're looking at the payment system, i think we need to remind ourselves what is it that people are expecting from the payment system? and i think there are four key things that people expect. and have always expected from the payment system. from the very first payment system when two people got together and decided that they wanted to exchange something of value. and i think those four are -- i would summarize them as number one, security. people are looking for security in a payment system. we don't want the payments to be robbed. we don't want the money to be siphoned off. number two, we're looking for integrity. and i think integrity is different from security. it's related but it's different. we want to make sure that the value that is received is the value that we sent. we want to make sure that it gets to the person we're intending to make the payment to. and we want to make sure that

it's as free from fraud and deception. as it can possibly be. and i would say id theft is particularly an assault on this part of the payment system. it's an assault on the integrity of the payment system. number three, people are looking for efficiency. people are looking for safety. integrity and then efficiency. they want payments fast. and they want the payment system to cost as little as possible. and i would also consider convenience. to be part of the element of the payment system. many people would say that's why this one didn't catch on. it doesn't meet many of the convenience tests that you get with this one. but convenience is part of, i think, efficiency. and i think that also includes some of the ancillary costs and the efficiency you may say well, it costs almost nothing to send something electronically but i got to buy the electronic device. and that's an ancillary cost and that gets built into the efficiency.

and then number four is reliability. if these systems can't continue to perform. can't continue to meet the security and the integrity and efficiency test time after time they won't become part of the system. and so reliability is the ability to meet those tests again and again on a consistent basis. now, none of these qualities are absolute. every payment system today has security integrity, efficiency and reliability problems. and risks and costs associated with them. but i will say this, that over time our payment systems have been performing better and better in all four categories. digital payments or any other payment mechanism will be judged against those four criteria. how the payment system to propose new mechanism to meet those will judge will it's accepting and succeeds or not. as a basis of discussion now,

let me turn to the development of the electronic payments mechanisms. and i would offer just a few observations in connection. observation number one, any new payments mechanism poses questions as well as offering answers. and that is true for the various epayment systems. that's observation number one and we need to keep that in mind. each time i have met with people or presented their new great idea for new payments mechanism, electronic or otherwise, they really focus on what they're offering. what they may not adequately meet is are they answering the questions that that new system poses. observation number two, what we've been definitely seeing in recent decades -- which i think is new, and i think it's new from what we've seen historically is growth and variety. the fact that i can have all these different things and i use them all today. i use all of these different payments mechanisms. the variety has grown. and i'm not sure that's a bad thing. that is increasing the competition.

each new mechanism has to compete against all of that. and everything that people are already using. so this growth and variety is important because it's widening the payments choices that are available to people. and despite the predictions by some advocates of these new mechanisms, no new mechanism, at least in recent years has entirely replaced any other significant payments mechanism that already existed. ...

>> number three, there is very little record of success in predicting at the outset which new payment mechanism will succeed. i sat down with people over 20, 30 some years and heard their wonderful ideas and how successful this new mechanism was going to be. and it never caught on. and many of them are that way. it's hard to predict what is going to succeed. what is going to decide these

notes of payment choices that we tabulate and reflected in market result, if we let them. and those choices will likely give us the answer as to what will succeed and what will not. and what is the best answer for what should be in a payment system, including not -- including not only which one particular item, but maybe which selection of items will succeed. what sweep of choices customers like. we need to let the market work its magic. i thought bob made an excellent point, that check 21 would have been the kind of disaster a lot of people were predicting. we thought they're going to be serious dislocations trying to get people to adjust to this. and maybe because very hard work on a lot of people, but i think also because the legislation was not prescriptive, we were able to make those adjustments. most people didn't notice what was going on. and yet they read all those benefits that if we let someone

other than the market decide the winners and losers, we will likely create the condition, bureaucratically, that's something that mechanism will fall short in either the security, the integrity, the efficiency, or the reliability for the payment system. and experience as a guide, many more ideas payment platforms will fail than succeed. now a word about risk. we can't forget that we're also talking about some very risky business. dynamite was created to replace nitroglycerin, as an explosive. but it can still make a pretty big bang. now, at this mode is appropriate to ask, what's he talking about? just this, banks are robbery targets here because if you can get into the bank, you can get into that mold, it's a lot easier to rob your neighbors that way than to rob each one of

their house. what's true about banks and houses is a true about payment systems and banks. if you can break into a payment system, it's a lot easier to rob through the payment system that it is to go and rob several banks individual. because you're into the flow of the cash. and it's because of that, it's a recognition of that, that banks have for years been devoting enormous resources to protect the payment system and to protect himself for those kinds of risks. recent transit show that organized crime is not unaware of the fact that they have increased their effort to try to break into the payment system. unfortunately, this effort that the banks have put forth to try to protect the payment system has not been reflected in all of the participants in the payment system. many participants or would be participants have been focusing on some of its efficiency, but

haven't focused on protecting the integrity of the flow of information and the flow of the fund. and because of that, some very, very major data breaches have been the result and we can go down the list if you want to. nearly every one of those cases, those are people got into the payment system without the adequate protections that were needed to preserve and integrity. any significant participant in the payment system, regardless of how attractive are revolutionary the new platform may be, must have a rigorous program of protecting the integrity of the payment system. now, how do you do that? again, i think bob was a effective in pointing out that many of the new participants in the payment system are not subject to any significant system of standards. there's nobody looking over their shoulder, or few looking over their shoulder, to make sure they are doing what they need to do, particularly in this integrity space. in our view, in the aba, we believe that perhaps that is the role for the federal reserve.

and we think of that for two reasons. number one, the federal reserve is a major participant in the payment system, and so they have a stake, a state that is inherent to what they do, to make sure the payment system works well. and then secondly, they have a national, in fact, not a national, a global perspective on all the different elements of the payment system. so we believe it's not at all inappropriate for the federal reserve to have the responsibility to set the standards and to make sure those standards are enforced. now, again, an important point and the third to emphasize that, the standards should be careful that they don't inhibit innovation. they should focus on integrity without being prescriptive on what new systems should look like and picking winners or losers. better must mean better and attractive to customers from all. safety, security and integrity,

efficiency, which often governmental rules forget, and, of course, reliability. if they do that then we all benefit. we will all benefit because we condemn rely upon all these new innovations actually making things better. increasing competition, forcing cost down, making things easier for customers, we all benefit from that. banks benefit from that, customers benefit come and that is how we can harvest benefits of technology as well as very, very keenly competitive area. and i think that's good for us all. thank you. [applause] >> just to make one comment, just to pick up on your remarks about the security integrity issue, and bob's comments about the well constructed checkpoint one and a flexibility that that has created. it seems there's a real trade off here. on one hand, allowed the integrity issues are currently

not regulated from the two entities. and you're absolutely right, we are all aware from just reading the news, some of the data breaches that have occurred, and those are costs. and those are cost to consumers and costs as a whole. and the flipside being, i guess, if we go forward with a regular framework, legislative framework to create a system to impose security standards on these players, i can't agree to more about the importance of doing it in a way that preserves innovations that it seems to me that the solutions, the ways to impose security in a manner that doesn't distract or create unnecessary rigidity in the system are going to be new companies, new technologies, new mechanisms and new forms of software. and that's an important part of the payment system as any other. so we want to bring those systems forward in some way, and in my view at least consumer

should be demanding the security procedures and protections, as should the merchants themselves who are at risk. and so, it's i think a passing issue and maybe an issue for another aei event, to think about what's the role of government in guiding or creating that opportunity for more integrity or will the market evolve myself without creating those. you guys can comment on that, or just q&a spent a brief comment. one is, banking is very proud. that's how we've been. but we also recognize we can come up with all the innovation. we have created checks. i think banks were behind the development of general-purpose credit carpet but there are a lot of other new innovations that we didn't do but we benefit from, and we want to encourage that. we want to make sure that you don't open up an avenue, because you can have a real tight

security system, but you create an avenue for crooks to get in. they can then get in the back door and actually foil a lot of the best security systems. >> alex, integrity of the data is a critical issue for both existing and new innovative payment systems. and i think it might make sense to take a moment, step back and say okay, where are we and the government regulation of that. the major statute at the federal level is the gramm-leach bliley act which imposes general requirements for banks. they're implemented in very detailed fashion by the banking regulators through the federal financial institution, examination council which is basically the grouping all of all the regulars and they put out very detailed manuals, and those i think i will start the

banking industry. wing indicated, i don't want to say this category, but i'm not aware of any data breach of the magnitude that wayne was described that occurred at a bank. and the banks are subject to this regime, these also is subject to and complies with this regime as well. a lot of the other non-bank players that were talking earlier am a not subject to this regime. some question as to whether they are subject to the gramm-leach-bliley act et al., to the extent they are, they would be subject to it as implemented by the federal trade commission which is not implemented a detailed regime like the taking registers have for the banking industry. so i think we need to look at this, drill down a bit and look at this question, both for the banking industry which has been the trend once of the world would have been heavily regular. and then these other ventures that may or may not be subject

to any regulation where the problems that we've seen have occurred. >> briefly. the federal reserve has always worked closely with banks and consumer agencies and other stakeholders in the payment industry. and has looked towards collaborative efforts to remove barriers to innovation where they have existed. and serve as a catalyst for discussions of these matters. i think i will stop there. >> we can go to the floor. i would just finish that thought. i spent some time on the hill, and at one point, some of the security issues. you mentioned, bob, nine 9/11 and shut down air traffic control system. but gao did some nice work on

the electronic structures, not the consumer side, but the bankside and the federal reserve site. when we didn't see interruptio interruptions. and for all the tear and consequences in new york city, that those wires and those systems were preserved and continued to function. there is a lot of integrity, a lot of places in the system that need to be protected. i want to turn now to the floor, and have a little bit dialogue and open things up for questions. either individual or to the true. don't feel obligated to respond to every question. but let's start over here. if you could wait for the microphone and identifiers of. >> tom brown. thank you for putting on a wonderful conference. i have a question picking up on a thread that you introduced, bob. i do a fair amount of work with payment companies, some in a non-banking. and as you and i have discussed in other contexts, the pulsing blueprint identifies this sort of loophole in the regulatory

structure for the payment businesses of the night stays between the bank provided and non-bank providers. it seemed to me that thread has been lost although the end the discussion about financial services mega- tort reform as we've been distracted by sort of discussions about other issues that i in trees if you've seen anything in any of the conversations that are going on at the moment that will address this oddity of telling non-bank to go get 48 state licenses to operate what is often an international are certainly national business. >> i guess that's for me. yes and no, tom. the cfpa that you mentioned does have within its scope potentially, we don't know of is how the ultimate legislation will be drafted. but potentially does have within its scope jurisdiction over the types of entities we have been discussing. i don't think in the context the other half of your question, the context of preemption there has been any discussion of replacing

the current state system with a federal system. i think if anything it would be additive and it would be some type of a federal overlay on top of the current state system of regular in the state money transmitters. >> right here in the middle. >> thank you. dave mills from the federal reserve board. i want to talk a little bit about the security and integrity. i might repackage it as a trust. and so there are a number of ways one could get trust in an issue of a payment instrument. certainly instead passionate a set of standards may help protect that, consumer protection laws may help facilitate that. but also reputatioreputations can't facilitate back it's hard to envision for several some start without some kind of established reputation being able to enter the payments instrument space, and just step

in and be able to sort of loosely just provide services without enough security, or integrity. i think, because the you need to establish trust to get consumers to carry, at least at a wide and broad scale. the other thing is oregon, all right, once you established something in the payment space, the trust still maintains, still very important in the sense that, okay, security and changes and threats to security are an evolving and dynamic process. sort of the old cops and robbers story. so you may secure one end of a payment security type of risk and new ones begin. and the importance of establishing that trust is an ongoing battle. and i think one of the things that in important to think about him as issues, are the incentives aligned properly to sort of maintain that level of trust. it's sort of a comment i have.

>> well, i agree with that. i think confidence and trust is what underlies all this. that supposedly in what causes you or me to take several thousand dollars and give it to somebody we don't know, and assume they will then transfer to somebody we want to. and i wish the point was correct that people wouldn't do that. unless an already established confidence to people. and i think maybe to some degree they do, but people will transfer trust. trust in one area, they may think transfer to something else. so i think that's a we've seen in the retail space. i have a lot trust and confidence in this retailer because i like what i buy there. and offered to take my money and transfer it into the payment system. i really have no idea what kind of systems they've got for a payment system and what it turns out is that many of those retailers that have earned your trust as a retailer, did not deserve your trust as a participant in the payment system. and that's why i think you need something like the federal reserve to set its a set of national standards that if

you're going to get access to the payment system on your own, you got to meet a minimum. i think the reason why you need to do that rather than let you build up the trust is this again, as if someone can break into that system, they can potentially have access to a lot of other participants that has been the treasury to develop the security systems, but knocking backdoor by so many who didn't do that. >> i would just add that in our expense in the u.s., i think successful payment systems so far have typically found themselves partnering with the banking system, or with a recognizable brand, payment network. and that's what's worked so far in this era of facebook and twitter. people are willing to share lots of information but i think they're probably still quite conservative with their payment information, and i don't know if

there will be, again, it's a question of if a new brand can enter the market and how that would happen is an interesting one, and worthy of continued discussion. >> i assume this was a new survey recently conducted that's not get published, is that right? is it a try and you'll -- >> that is forthcoming. we have a server in the field right now spirit that you find the pitch at the. >> and we expect preliminary results from our study by the end of the year. and we look for to sharing that with the public. maybe we will see how trends are changing. spent we have time i think for one last question. the gym and on the end here. >> thank you. my name is louis. for the question i want to address to both of you, is somehow, i feel it needed to

address. don't you think that there are some special people we are not aware of, doing things against the you as as part of this ongoing work against the u.s.? you can -- i can sit this digital money can disappear. i can see this financial crisis. don't you think this question need to be looked at more closely? thank you. >> well, i'll make one comment on that. it is a very difficult to control something that's as competitive as the payment system is. the payment system is so incredibly competitive, fiercely competitive, that no one particular party could control all aspects of it.

are the people that are trying to break into it? are the people are trying to defraud others and pretend to be folks that they are to? they absolutely are. we've seen the growth of identity theft over the sense of about late 1990s, read something in the neighborhood of millions of people a year who are somehow in one way or another able to pretend to be somebody who they are not. but i would say if anybody being a mastermind controlling all of that, i think is probably pretty difficult to do because it's incredibly competitive system. >> and we have time for one last question. all the way in the back. >> on the slide, have a uniform law commissioners alternatives to the transmitters? was the potential for their being hated states, either for money south dakota, delaware type things, such as your states, or sort of something like that kind of haven state

for money transmitters to locate? >> that's a great question. some number of years ago, the federal congress adopted a statute to encourage the states to become more uniform in the regulation of money transmitte transmitters. up to that point in time it was really all over the map. there was an effort as a result of that federal statute to develop a uniformed money transkei, money transmitter law. and many states have adopted that law with some an animal state variation, but not all states. so there is some uniformity state to state, but it is not uniform and there are a couple of states still that don't have a statute. now, to the other piece of the question though is that

virtually every state takes the view that if you are providing what i as a state view to be a licensed money transmitter service to residents of my state, regardless of whether or not you're actually located in my state you've got to come in and be licensed and be subject to my state. so it would be very -- and there's no sort of exportation like with interest rates and the states that are favorable to interest rates that you referred to. so it would be very difficult for an entity engaged in a licensed money transmitter business to certain nostalgia in a state with light or no money transmissions, but then it could only offer its services in that state. want to win out and offered services to residents to, say, residents just in new york, new york would take a position have to come in and be licensed and be subject to our state. the answer is an excellent

question, yes and no. [inaudible] >> extraterritorial, glad you followed up. very good question. it's a jurisdictional issue, while the state make it give you that a foreign company located a broad providing money transmission services to residents of that state is subject to that states regime. the state may will not be able to assert any jurisdiction over that company, particularly if the company is located in the country that doesn't have reciprocity arrangements with the united states. so that would definitely be a potential loophole to the existing regulatory structure in terms of a foreign company through the internet, for example, offering services to u.s. residents in the united

states. >> your question raises one of what we see one of the cardinal virtues, the american financial system, and that's illegal the dual banking system. with national banks that have national rules that we have state banks that have state rules that one of the most successful payment mechanisms and deny state came about because of that dual banking system to try to the civil war, every bank issued its own currency and to secretary of the trace of that's crazy. we want to have a national currency. so we invented the national currency. but all the state banks out of business. but state banks independent checks. and when state banks start issuing checks we had a brand-new very successful and attractive payment mechanism. the bottom line of that is we need to have some basic national standards but don't eliminate the opportunity for experimentation and innovation through various different states in other jurisdictions that because i think we'll find some of the better future innovations will be established in one of those jurisdictions, and then

become widely popular. >> fantastic that innovation is good important. a couple of things are really important here at aei and one of those is ending on time. so we have got about a minute left and i am going to wrap a. i want to thank and but on the for coming here. and thank josh for his remarks as a keynoter, and thank ago here in the audience as well. [applause] >> [inaudible conversations] [inaudible conversations] [inaudible conversations]

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committed. >> this year's c-span's studentcam competition asked middle and high schools is too great a five to eight minute video do with one of our country's greatest strengths are challenge the country is facing. here is one of the second place winners. >> i feel the constitution is the nation. it's not the strength of the nation. we come from many different backgrounds from various tribes

were male and female, black and white, brown and english speaking in spanish speaking all these other things. but unlike every other nation that first started on earth we are more than a drive. >> it is the most defining of freedoms energy by the bill of rights. include any amendment that is first among them the right to free speech along with a free press, freedom of religion and a summit, and the right to petition are such a part of the american character that it's difficult to imagine an america without these rights. as history has taught us rights are not to be taken for granted but rather to be asserted, defend and define from generation to generation. new challenges to the extent of our freedoms are always on the horizon. >> the first amendment is essential to our american way of life that it guarantees us freedom that enable us to express our ways freely. many people feel the guarantee such as freedom of speech more than that are the strength of the nation.

>> i think the constitution is our nation. i think is what we are all about. it protects our freedoms and we wouldn't be where we are today without it. >> i think the fact that the constitution really forms a fundamental framework for providing us freedoms in terms of freedom of speech, freedom of expression, freedom of the press, not only just those freedoms but also a really solid framework for how to go about changing our government, if we want to change the government. >> well, the first amendment guarantees five basic rights. freedom of religion, freedom of speech, freedom of press press, freedom of assembly, and freedom to petition the government. >> we again are seeing the freedom to speak and to publish ideas that were also guaranteed equal access to speech venues like t.a.r.p.

if your extracurricular clubs, in your school, there are certain rights that students have to have a club that maybe someone else might not agree with. so we not only have the right to speak, we have the right to access the forums were might be able to offer speech. would also have the right to access others speech. newspapers, magazines and even blogs all rely on freedom of speech to operate. another industry that has blossomed by having these rights is television. c-span, for example, relies totally on the first amendment and are to operate. and without these rights, c-span could not even be in existence. though he often exercise our rights, some people feel we take them for granted. >> it's in our blood that we have freedom of speech. and it's hard for us to imagine now what a society would have been like without it.

but on the other hand, i think that is also one of those things that whenever it's challenged, americans feel very strongly about it. and they get very angry. and so in that sense i don't think they take it for granted at all. i think that they really treasure it as a core of their national values. >> the first amendment is one of those remarkable things in american history. 45 words. it's been around literally since the birth of the constitution. essential he 7091, was ratification of the first amendment. it's so simple, so basic and unchanged and all that time. and yet if you walk out on the street or in your homes as you watch the show, and pull out a pad of paper and say, okay, what does the first amendment really say? i would just challenge people to

jot down five numbers there and just jot down what are the five things of the first amendment. it is core to the kind of people we are. and yet most americans overwhelmingly cannot name the five freedoms of the first amendment. in fact, one american in 100 contains the five freedoms. >> the first amendment is the essential strength of our country. some people believe we face difficulties because. >> i think there's always a risk that you take when you offer people that much freedom. i think it's a risk worth taking. but, you know, you open, you open up a government to criticism. and politicians don't always like that. and there are times where i suppose there are the freedoms we have may slow down the machinery a little bit in terms of getting anything substantive done. making substantive changes.

but any and i i think that's okay. i mean, we have to make sure that the people are involved in the conversations. and so, again, we open ourselves up to criticism, but, you know, i think that's a critical part of any sort of social change. it's a balancing act. yes, freedom has a risk because of being free means that people are able to engage in speech that we don't like. >> if the first amendment guarantees us these rights, why is it important to know about them? >> it's good for anybody, what a way age, whether they be twice my age or half my age, to know their rights. you're not able to do what you feel are do what's right in your own eyes without knowing what's allowed. >> i think the bill of rights has a certain sacred quality to it, because it defines who we

want to be. and so i think that's really important to understand the bill of rights, to understand the first amendment, the constitution. >> it's interesting to your comment about its hard to think an america without the first amendment. and really there is no america as we know without the first amendment. >> it's clear that freedom of speech not only is the strength of our nation, but the heart of our nation. it leads us to innovation and new concepts. it connects us for information. and, finally, it frees us to be whatever we want. >> to see all of the winning entries of this years studentcam competition, visit studentcam.org. >> i think there is a huge lack of knowledge about how this down works, how congress works. >> when you're doing the actual

research work he does have to do that yourself. >> this week and award-winning historian richard norton smith and douglas brinkley will talk about their work, their books and their profession, and revisit their first appearances on our network. q. and a sunday night on c-span. >> the federal government recently approved the creation of a marketplace for betting on the future performance of new movies. on wednesday, however, the senate agriculture committee asked a bill banning such exchanges. this house agriculture subcommittee examines the issue with government officials, entertainment, and financial executives. the chairman is leonard boswell of iowa. this is about two hours and 10 minutes. >> the hearing will come to order. i would like to thank everyone for joining us here today, as we take a thorough review of the proposal to establish exchanges to trade movie future. i would like to give a special thanks to our witnesses were testifying before the committee

and offering their insight. the hearing today explores a novel new product to be considered for trading on a futures exchange regulated by the commodities futures trading commission. this product is movie future's come or box office derivatives. when the commodity exchange act was first passed in the 1930s, it was very unlikely that congress envisioned such a product would be regulated by the act. even in subsequent and minutes to the cea, i got those of us are today foresaw the development of this type of exchange. nevertheless, to applicants had to go proposal to establish these box office exchanges are seeking approval of contracts that would be offered there. i am pleased that both applicants are here today to discuss the products in more detail and hopefully answer some of the concerns that have been raised about the nature of these products. mitigating financial risk as a primary reason for futures exchanges. however, the natural hedges of the products have for the most

part insist they will not be using the product to hedge their risk for various reasons. we look forward to hearing from our witness today on why this may or may not be the case. the cftc has approved applications to establish these exchanges but the contract applications are still pending. this hearing is especially timely given the current state of financial rigatoni affairs and actions going on in the senate. we understand what the statute prohibition of said exchange. i hope the witnesses will oblige this committee to better understand these exchanges and the issues rescinded a bike and. so that the members are will be able to ascertain the correct course of action going for it for future consideration of these applications by the cftc, and of the law with the congress. again, i would like to thank everyone for joining us today, and at this time i would like to turn over to my good friend and colleague from kansas for any remarks he would like to make. >> thank you, mr. chairman.

if someone told me several months ago or a month ago we would have motion picture association of america, the directors guild in front of the ag committee i thought it would be kidding. but here we are. reader to reader our proposal to establish to box office future exchanges and the context of each trade on those exchanges. in fact, the exchanges are no longer proposals because cftc has approved both the cancer exchange and the truth is media exchange in the lastly. i understand what the exchanges have been approved the actual contracts are pending. commission review and approval. hopefully mr. berkovitz will elaborate on the process. up until a few weeks ago i'd never heard of this concept. and i'm simply here to learn about a new exchange, the contract of those exchanges plan to trade and benefits and challenges that each may present. the commodity exchange act set forth a set of standard and exchange must meet before it is approved by the commission but i hope to learn how each exchange

has met the standard and the you by the commission in reaching its decision. for instance, i hope the commission and what is that when economic relevance of these exchanges and the potential contracts that these changes will take the guy also wanted of these exchanges will prevent potential fraud and manipulation that might occur. in addition there are some witnesses that have concerns about the contracts and i want to gain a greater appreciation of those concerns. i look forward to hearing the witnesses testimony and hope to learn much more about this new concept of us office future exchanges. thank you, mr. chairman. >> thank you and out like to recognize the full committee chair, mr. peterson has joined us, for any remarks you like to make at this time. >> i just want to commend you and ranking member for being on top of this issue. sounds like there will be votes i won't take up any time and let you get with business. look for doing what the witnesses have to say. >> thank you, and i want to ask if any of the members present, a statement can be included in the record. so to the get right off to the

task force, we recognize the first witness and to thank mr. berkovitz are being here. so, mr. berkovitz, please. >> thank you, mr. chairman. good morning, chairman basel, ranking member more and, chairman peterson, member of the subcommittee. thank you for inviting the commodity futures trading commission to testify at this hearing on the possible trading of movies futures contract that i would like to request that commission full written testimony be included in the record. the commission's testimony addresses standard and procedures with which an exchange must comply to be approved at the designated contract market, or dcm. this testimony will also describe the process for the commission's review of the box office receipts future contracts by the two recently approved dcm's, media derivatives and cantor futures exchange. an applicant for a dcm license must demonstrate to the commission that it complies with the requirements commodity

exchange act and the commission's regulation. specifically the applicant must make a showing that it complies with the eight designation criteria and 18 core principles in the cea. the act general requires the commission approve or deny a designation application within 180 days after it has been filed that if the commission denies the application it must specify the ground for the do not. with to the approval of a product to be traded on dcm, the cea provides a dcm may either sell certified new futures contracts or voluntarily request approval of new products. to sell certified a new contract, the exchange must provide for the commission at a minimum the rules it has tabs or relate to the contract in terms of conditions along with statements are defined the contract complies with the act. if an exchange requests commission for unapproved or a new contract, the caa requires

within 90 days. cea requires the commission to approve such contract unless the commission finds that the new contract would violate the cea. it is the commission's practice that all new contract files are posted on the website and public comment is requested. the primary focus of the commission's review is to ensure that the contract is not readily susceptible to manipulation and that the contract has. >> is a position limits or position accountability levels as appropriate. the contract market designation process and the contract approval process are separate and distinct. the two processes involve different review procedures, time frames, and approval standards. contract market applicants have the option to submit an application that does not include any proposed contract. however, in conjunction with the review of the new dcm application with the contract is not part of the application, the commission staff typically inquires about the type of contract the appleton contents

to offer for trading. information about potential product to be traded helps inform the staff about the nature of surveillance and oversight measures, the exchange would have in place to be designated. the commission have a separate contract market designation for to outlook as a counterpoint lifting box office receipts not expect the commission designate media derivatives inc. on april 16 of this year and cantor futures exchange on april 20. neither of these future exchanges said that their proposed futures contract as a part of that dcm application but in both cases, commission boldly considered the applicant submitted materials, representations made and demonstrations related to the designation criteria and core principles that the commission determined that they media derivatives and canter application satisfied the requirements for ca and cftc regulation to include the designation criteria and corporate doubles. the order of designation for both media derivatives and canter requires them to submit to the commission for review and

approval any new class or category of media related products prior to letting them for trading. in doing so the commission refused and uproot these categories to futures contracts prior to the listing on the dcm's. media derivatives and can towards proposed contract under active review. the commission will carefully review the proposed contracts according to the timeframe and standards under the cea and the commission's regulation. the focus of these reviews will be to determine whether the contracts are not really susceptible to manipulation's, whether they are appropriate, whether there are appropriate limits for accountability levels and integrity of the cash settlement process. in summary, the commission is committed to fulfilling its statutory responsibilities. it is carefully reviewed the two recent dcm applications and determine that they meant statutory standards. with respect to the contracts to bid for approval, the commission

similarly will conduct a thorough and careful review seek and consider public comment and make a decision based on whether the contracts under review meet statutory but cry too. that you for this opportunity to testify. i look for to any questions you have. >> thank you. before we can did i would like to recognize mr. goodlatte from virginia has joined is that although he is not a member of the subcommittee he is here with us today. and consult ranking them and were pleased to welcome him to join us here. welcome. >> thank you, mr. chairman. is a pleasure to be a. i look for during the testimony of the witnesses regarding this very interesting subject. >> okay. welcome. first question i guess would be in it in the applications, didn't cftc examine the question of whether legitimate ventures, both short and long, exist for these products. and if so, what did the cft c. discover? >> as i described, mr. chairman,

the contract application process and the contract review process and the designation process for the exchange are two distinct processes. so in the designation process where the exchange itself operating exchange, we reviewed whether it met the criteria, the statute including whether they have training facility, how the trades are executed, the integrity of the financial integrity of the contract, and the various systems in place to ensure fair and equitable trading. regarding the contracts, the questions that you have raised more appropriate in part of the contract approval process, which we're in right now. so those questions are some of the questions that we're looking at in the contract approval process. >> appreciate that. the question, which explains why the commission approved the ability for people with inside information to participate in these markets? all things equal people with

inside material mature be allowed to participate with an sec markets to? we have included in a condition for the application, as i mentioned in the oral testimony, generally the exchange is approval process and the contract approval process recently are different. we have looked at the exchange, in these particular instances, the request for approval of the exchange with a view towards what contract will be traded on the exchange. we have been successful with both applicants. we have an idea. we did in fact know their intentions to the movie futures contracts. part of that to address the concern you have raised about people with inside information, potentially, about the eventual box office numbers trading in those futures contracts, we have

included in a contract approval -- in the contract approval process, the condition that these exchanges have what we call firewalls between people inside the studios who have actual knowledge of box office receipts from the people in those movie status who might be trading for hedging purposes, or whatever purposes, for the studio. so we have included the firewall conditions as part of the exchange approval process for both exchange. not only does this prohibit them from people having inside information about actual box office receipts of trading but it would prevent them from having other information. so those conditions have been included as part of the approval process for the exchange. in addition as part of the contract approval process we are looking at that question further in terms of where the contracts

themselves are susceptible to manipulation. so the question is in view of these particular contracts and how, examining the consent have been raised by these contracts, we are looking at that issue with respect to these particular contracts are those of firewall sufficient, have other concerns been raised that need to be addressed as part of the contract approval. >> okay. i'll have further questions. but i recognize that night at this time. >> thank you, mr. berkovitz. how does the cea to find a commodity and how does the box office futures contract fit within that definition? >> the commodities exchange act defines a commodity very broadly. basically anything a good, and article or service or an interest in anything in which a contract for future delivery is dealt in. so if something is subject to a concert for future delivery, then under the commodity exchange act it would be a commodity. and the future delivery in this

case is what? >> the future delivery is the box office receipts. >> it's a number that is related to the actual box office receipts. my questions may be more related to the actual contracts. but what type of data to the exchange is used to sell those contracts? >> it is -- according to the information that has been supplied to us, to date, and we're looking at this question in great detail, but they basically, they're going to be relying on a the tally of box office receipts that are provided, the service that provides from the movie studio on the movie theaters ,-comand, to the studios, the actual box office receipt numbers are. that gets sent to the studio so the studios i believe that they will be able to better answer the question.

also, collect some of this data and the studios put the data together and then there is the final number from the receipts that they did, plus their own information. >> when you say final number, is that an actual hard numbers, or is that an estimate? >> i believe, i believe there is an actual firm number. >> okay. how is the opening price of the contract determined? and are there currently any other exchanges that use that method? >> my understanding is that, and we can provide further information on the record on this, but generally, my understanding of it is that it is similar to the process that other exchanges used for determining what the opening price of a contract is, that there is a pretty, before the contract is open for trading, that there is a type of bidding process that goes on that the exchange used to exchange

establish whether it should start the traded but we can get you further information on exactly how that would be determined and any similar is our differences. >> you have an estimate of the timeframe in which the cftc would make a decision with regard to the actual contracts because there is a statutory deadline i believe for -- its june 7 for 1 of the contracts and june 28 for the other one. >> thank you, mr. chairman. i give back the. >> -- i yield back the spectrum one. mr. berkovitz trying to get in under standing as the ranking member set of knowledge of the subject matter, when the commission is looking at a new product coming on the market, and you mentioned about the factors that are considered of whether this is legitimate product or not, how then judgment of does the commission

become in terms of one extreme just a quick, okay, it meets the points, fine, let's do it. the other extreme, unit, this just has no business being there, this is not something we should be doing. how does that way and in terms of, once again, isn't just black and white they are or judgmental it should be there? >> generally, the first look at is something that would be a data contract for future delivery. that's our jurisdictional base. so we'll take a contract for future delivery, that's appropriate, appropriate for further review. if it is indeed a contract for future delivery, then we apply the standard set forth in the act. primarily if not to manipulation, appropriate limits, settlement, pricing the contract appropriately determined, there's a process for determining the price, their

integrity during that process. >> what considerations might be given to unique circumstances that could effect a movie's popularity in terms of the investments that were made versus browns insurance might be used to offset unexpected things, what if a star, we found that three days before the release have been adding illicit affairs or the snows came deep in february and affected the opening day, or there was some of the crisis that kept people at home? are we opening ourselves up to issues there that are beyond what we should not expect? how does that play in? >> our primary focus is on ensuring that there is no manipulation of the price of that commodity that is traded.

so we would have our surveillance and the exchanges, we require of the exchange have service to so there's no artificial price created through any intentional manipulation of the price, and we watched the price movements to make sure that indeed, the price of these on any contracts that are traded any of the exchanges determined according to the laws of compliance basically. >> thank you, mr. berkovitz. mr. chairman, i'm looking for to hearing more of the arguments from the individual. i yield back. >> thank you. mr. goodlatte? >> thank you, mr. chairman. mr. berkovitz, welcome. can you think of any commodity that is traded on the major exchanges that is anything like a motion picture? >> in a broad sense, the motion picture contract, one could describe as an event type

contract that is related to an economic event, or anything. we have weather derivatives, we have -- but weather derivatives are beyond the control of any individual, are they not? >> certainly. >> i mean, when the gentleman from north carolina, he raised several different types of events. some of those were like a big snow storm, that's beyond the control in by trying to predict and that would not be unlike buying corn futures and not know what the weather was going to be like, or things like that. on the other hand, the motion picture itself, each one of those that is produced is a very unique product, very much unlike the next one. whereas one barrel of oil is not a much different than the next one. one bushel of corn is not very much different than the next one. one year old daughter is not bring much different than the next one. so it seems to me that in looking at the very broad definition of commodities, the

cftc has, nonetheless in looking at motion pictures, you're going into an area that we have never done before in my opinion. can you give me anything that is like that that is of such subjective value as a motion picture that is offered on these exchanges? >> i think the issue that you raise in terms of control or ability to affect the price in terms of where the derivative, will affect the temperature in chicago or seattle, the question that has been raised about the contracts and somebody affect the box office receipts, and that sense, that distinction is indeed something that we're looking at and saying whether -- >> i've heard that there's some discussion the cftc about excluding people who are involved in the making of a motion picture able to trade the futures contracts, is that correct?