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[inaudible conversations] we are on a tight time schedule. today the conversation is on fire. [inaudible]

a decade of governor waller. prior to his confirmation appointment as the federal reserve board governor he was executive vice president of the st. louis reserve and a partner that the distinguished economic professor at u. of notre dame university of kentucky and university of indiana. with an extensive and to lester's academic pedigree with experience within the st. louis federal reserve he has taken that view to washington and has come up with some strong views in washington and i want to start with the comment you made in a speech entitled cdbc a solution in search of a problem. in that speech he said quote there's no reason to think the federal reserve can develop cheaper technology than private firms. end quote. i opened state america are the

runs on the cdbc commercial digital currency. do you see a benefit to society that swapping out the first commercial to central? >> i gave that speech back in august of 2021 in response to momentum building around the central bank and digital currency and the basic question i asked what is the major market failure in the payment system that requires the cdbc and only a cdbc to solve? i pose that question two years ago and i have not heard one satisfactory answer to that question yet. it makes me think is something they could do. nothing that thinks it's needed. the commercial banking system works well and people are happy with their bank accounts for the most part and general access to everything.

it's not clear what you gain by having central bank digital currency over another banking system. >> so the benefits aren't there why is there so much activity with the fed? >> we always had to be prepared for the fact that congress tells us to do this we had to know how to do it. that's most of what we do is explore how would we do this and how would they manage it into the recordkeeping? it's just trying to understand the technology so if one day congress said you need to do it you could do it. so a lot of other countries have which china which is something the director chopra start and ended up with talking about the chinese evolution and the bahamas and how they have gone deep into crypto and is one of their crypto resident although

he was in handcuffs and by extradition order i might add. the uk and europe's central bank are moving its cdbc banking has long been successful payment operations and why are other countries going in this direction? >> it lays out a challenge for everyone around the world to answer no one has answered. i tried to make this point multiple times. but a re-central bank is talking about is in the count basie d.c.. they are talking about constructing or distributing semi- anonymous instruments like that coin. that is not what they are doing. if you want to pay your electric bill go to pbo see to pbo cnl process the payment. that's it. that's all it is. that's where all this confusion about it being some big deep technological thing, it's just a checking account.

why does that threaten the reserve currency status of the dollar? i have no idea. .. being a threat to the chinese government and banking system controlling money and money going to different companies it. i think part of the problem is america and europe, we think of things. when europeans invented gunpowder they built ships and colonize the world. we are sitting here speaking english. china had steel and gunpowder before europe and they did not go we are not speaking chinese for different countries that

don't prospectus the second we had magnetic stripe technology with our plastic cards we colonize the world with plastic cards. china may not be doing that. they kept their system was hard for non- chinese people to access their system. i think you are right to pose this question different countries have different perspectives that's one of the reasons why we misread that in the u.s. let me take a question future payment to see this we offer questions online and they came in. one came through johnny from block chain asked kent in the u.s. and private stable coin coexist within the u.s. regulatory framework was marked by loving people take two things don't exist that they exist they could coexist? corkscrew point to. >> the way it would work if it would happen in the oh she would have an account actually with a bank. it's an account directly with

the federal reserve. it would be a direct account and that is not what we are proposing. you would go into your bank app, open it up there is a bank account with your commercial bank a digital currency and right below that. all that happens is the bank is holding a stock if you want to make a payment they would simply say to the central bank transfer one unit to this other bank. that is it. that is all there is. there is nothing revolutionary where it works different than the standard bank account which is a revalue to it stable coin is kind of like a commercial bank with the claim to a dollar. as long as that claim is honored they would circulate like money. the thing with stable coins is what is the business model that supports it? what are you trying to do with

that? how are you going to make money? there different models but in order to be successful you have to tell me why you do it. every large bank i talk to they said has no interest they seen no value process. but at the end of the day if you did issue one it would circulate like any other and trade with u.s. dollar. there is nothing fundamentally wrong the peacocks i have commercial bank digital currency that trade with the dollar. the federal reserve account has been proposed that leading scholars that vanderbilt law and other places has come out with the idea of a fed account that would require eight law change. it passed legislation expressly prohibiting the fed from enacting retail or having treasury do it under existing law. it's not clear to me whether existing law would allow for that or not.

in fact president biden executive order asked for the department of justice to clarify that topic. i wanted to ask you whether the fed has legal authority under existing law. you said something congress would need to direct it. so do they have current authority? would it require new law? and who makes that determination whether it has current authority is at the fed? the department of justice? the president? the courts? works if you are talk about direct retail accounts you have to have a master account. right now the law is only banks can have master accounts. it isn't you, or me or whoever did it better be a bank for you don't have a master account. something other than banks can have a master account for the u.s. government we are the fiscal agent for the government too. they have an account two. the accounts are held by

financial institutions to do all of the payments. the view of the fed since we were founded is our job is to ensure the payment system function sufficiently and things get done. we will do the stuff in the back end of the house but the front end is the banking system. they are engaged directly with the consumer. we sit with the bank in the background and make sure things clear and settled. that has worked for well over 100 years. i want to know why we need to step up front and now the front facing with retail customers? again nobody gives me any decent answer to this stuff. having a retail account you have to have a master accountant. as far as i understand that requires change the federal reserve act. >> it is interesting because i agree to disagree through a couple of points by the system works really well for the 50% of americans that have a couple thousand bucks in the bank account in poorly for the other half. what happen structurally as the

other half has grown. and fiscal instability hitting the zero lower bound. instead charges have come an alternative payments. i think in response to maybe that phenomena may be other global phenomena you could say why but the federal reserve has released a new payment system fed and now which has been launched. before we turn into fed know when to get deep into the effects of it there has been a weird thing i have noticed an explosion in social media of it lies about fed now. it is a precursor so a c bdc is going to allow the federal reserve to steal your money and take things up. when you deal this fake news you're partially tempted to ignore it. then you see it's the number one, two, three trending thing on facebook. getting 17 fact checker calls i

want to give you an opportunity, are these narratives true question is fed a precursor that will allow the federal reserve to take group money and stop you from buying guns or have access to medical procedures like abortion or anything like that is this part of a nefarious master plan? >> the fed now is a payments products. currently now you say offers a payment to be made. it gets transferred. if there is some time between when the transaction is initiated it's cleared and settled and the money is done. that could be two days. that could be done in one day. it could be done in two hours or two seconds. that is the only thing you are arguing about on a payment system is how fast the payments clear and settled. but rtp is a chance to have all that clearing and settlement transaction done in two seconds, that is it. you are changing simply the amount of time in which the

transaction is settled. that is it. there's nothing new about it. do that now with other forms of payment. we are to shrinking the time that is it. their summer information being changed. right now the transaction thanks tell us process $1000 and sent it to the bank. we say okay. we do not know why we do not ask why we do not know the transaction was for and that banks have that information. that is all fed now is going to do is the same thing for there's a more sophisticated messaging. that is up to the banks to decide. really there's nothing fundamentally changing with the information we would get from fed now from any other payment service we do. all it's happening. >> faster is better in my opinion. switching to fed now, launch came out i would say it has been

a little slow for it earlier panelists talked about there not that many institutions and men y have signed up receive only. kyle from the american banker asked our banks and processors adopting fed now as quickly as you anticipated? what is your pitch to considering the payment system? >> the whole launch was intended to be a smaller exercise. create a minimal agile thing. at minimal viable product. so let's get the thing out. make sure it works. see how people use it and from there you build it out in terms of the network and capabilities. that is all fed now was for we launched it we have roughly 30 -- 60 banks initially signed up for it. we have a pipeline of banks. the banks have to set up their infrastructure processors have to set up their infrastructure but they have to make the investment in technology to use

it. this would grow over time. we never would expect to launch at 4000 banks joining. that was never an expectation or a reality. so over time we are over 100. since the launch in july it was gone from 38, 50, 60 to well over 100 brick works of their 100 today? >> yes. there are more of the pipeline various estimates could range from 250 -- 350 by the end of the year. then it will continue to grow as banks do it. banks have to see some value proposition to make the investment. to join and want to do it. and that depends of the customers want. any banking service if they wanted. >> let me push you on that a little bit. i do not want an overdraft. one out of every 12 american space through a $50 a year or more and no consumer today can walk into their bank and ask fed now money.

every other country that hasn't done this has required the banks at some level to either use the system or move the money faster and they had massive adoptions and no one is on backwards. i am unaware of any country that did real-time payments and they went back. the banks and credit unions have huge incentive to maintain the status quo. some of them milk their entire business model and overdraft. identify banks and credit unions all over this country to make 50 to 350% of profit on overdraft fees there's a strong incentive for the bank and not to move money faster that would reduce their profit. no ability on the consumer to ask the bank to use it. how is this market mechanism going to actually create the adoption? >> first the bank has to join the system. and presumably like anything else of customers demand at the bank will make the investment and do it. and if you are unhappy with your

bank and whatever fees go get another one that's the way it's working. you do not to force everybody to do what you want. we allow banks to do what they want. it is competition. if you want to do things your customers are good, tell your customers to go get another account at another bank. >> we have 9000 credit unions inthe u.s. for a quick sense lie a lot of competition you go to pay. >> the cost of switching is really high. hold on a second wheelie of three, four, six, seven cell phone carriers. but i can port my number. if you could not port your number the cost of switching cell phone to be superhigh. you cannot port your number in banking. right? >> open another account i have four different banks for. >> i do to because you have a bunch of money. we each have money to put in the accounts for a trite opening an account with 100 bucks. >> fine. let's go do it will be fun you will see all the account minimum

fees for. >> on with it has with fed now? where are you going with this? >> the idea of competition driving the solution is predicated on this idea that consumers are going to compete and i'm skeptical of that element of it. >> that is fine we have the same thing with restaurants or anything else. people are going to be skeptical. the firms are going to respond with their performance it's just the way markets work. you're saying marcus not going to work? we will see it works on a lot of things. >> i wish they failed as fail is failed asfrequently as restaurad fathers meet but we have no banks failed. >> i don't think you really want that. >> that is a good question. we could go on this back and forth and have a lot of time fun. i don't think you want a world were no bank fails year after year thus not a competitive market either. but you guys in the audience and

we have not inspired you to get in on this what are you doing here on a friday? [laughter] who is got a question? in the back. >> thank you for joining us this morning. i have a question. you said the fed was working on a cbd c in case congress were to require an issuance of a retail or wholesale. is the same logic apply to stable coin and other crypto assets? should the fed be working as hard and potentially integrating other crypto assets into the banking system if congress were to require that? i think if you look at the custodian denial order to very clear there's a lot of challenges with respect to understanding the risks and opportunities of crypto assets, thanks. >> as her separate statements for the idea operating a running stable coin were never going to operate a stable core there's no point wasting it on technology.

but we have to do is assess banks are going to be involved in this safety and soundness risks to the system by giving them a master account. that is where issues have come up in the past with this. you have got money laundering. all of these other things that have to be done to have access through us that is on the bank side to make sure. i don't need the technology of how you do your business model were not going to issue stable coin so i don't have to worry about how to do it. >> governor, thank you for being here. let me follow-up on the stable coin issue but in a different way. one of the issues was important and the house discussion was how do we implement what we have in banking the dual chartering structure and stable coin. with federal as well as state

chartering. leaving aside the master account issue because that is a separate one in terms of the federal and state issue, what do you think is the proper way to resolve that debate? the bill came out. it got a few democrats supporters. but not as many as some of the republicans hoped they thought the fed has have a stronger role played the fed has to be able to set minimal standards we don't have the states racing to the bottom. i did think about that? >> we are just talk about stable coin it's a very simple idea i will issue a token has a par value how do you ensure this par value backing it up? that's it that's the fundamental question. why it went issue and how are you going to make money? potentially different ways the typical things they have in mind zero interest liability and that

is your spread. with short-term liquid assets it's a lot of money to make it worth your while. now facebook now known as meta- were looking at having an dm as a stable coin the idea that there was they simply wanted to get your data. they would happily taken every dollar at dm put it right in the fed master account and do nothing with it. they want you to pay in a different way. ask if i could follow up you would have to say you are comfortable with the situation were states license stable coin issues require full reserves invested. >> what we do is an issue where it gets back to is this a money transfer scheme? if it is purely a payment design

we already have all of that. that's that money transfer pretty getting your license in 50 states maybe we should need a one national license to be much more efficient, that makes more sense for there is a separate issue if it's going to be a payment instrument versus some kind of other type of instruments. ducts earlier on pointed out you say 27 countries we are the only one at 26 has a federal money transition situation. it's two questions in that row. starting on the isle. >> good to see you again. going back wholesale there are a lot of cases are cross-border. there's a lot of central banks are working on projects. as the fed in any way doing

projects with the bank to study cross-border? >> wholesale cdcs are slightly different animal than a retail one. we have a cbd see is called bank reserve it's a digital liability of the banks. what you want to think about with the wholesale is how could we take -- allow banks to use that reserves in a different more efficient way to settle payments internationally i have no problem with that. you may have a different platform in the current system i know it's going to sound stupid you go to a casino, you take your doll that you will go get a poker chip. the poker chip is the token that moves around the system and does all the transactions at the end it can be transferred back out. that is what he think of often time is the platform, the technology for how you move some digital object around and making

payments. like i said that is just technology. if you could come up with the technology that makes it faster and easier for banks are tokenized their reserves and do global payments, i am all for it. i don't have any problems with that. >> hi, my question is more to do central bank balance sheets. so, given the last decade if you look at the advanced economies that fed, the bank of england, japan, they're not unwinding. the question is none bank statement of coins. despite the very bad winter lester 2022 the top focused on and the footprint was in trillions. i cannot given the demand i've

heard this morning this could double, quadruple. so my question is, given the central bank balance sheets there's a lot of assets with very good collateral. the non- bank stable coins also siloing dollar or cities good quality. my person is not about banking stable coins because that is another topic banks will not do stable point but that's a different topic. >> is going to be a lot of non-bank stable coins that want to follow basically the mutual fund money market fund model of zero interest liability. and collect positive interest that's one model as long as they are safer. what you are addressing is the supply of short term liquid

assets out there? that is not under my control. they are not buying my claims there bank claims of governments around the world. there is financial stability potential risk for this for this is one concern people have it. you could have a run on that set up. that is of concern for faxed financial stability. that is the concern people have. there could be a run on these things they could not satisfy the demands and then some chaos would ensue after that. >> my dream world that money market mutual funds they break the buck the investor lose the money the government the treasury department some bail them out because we have created a bit of a problem there's an expectation a money market mutual fund cannot lose money which legally it can. i think we have time for one more question you raise your hand. >> is going to make a similar point not for nothing stable

coins could be good for u.s. treasury liquidity markets as well. i think we have time for one more question. at coin base. i just want to ask if the banking system is so competitive is easy for people to switch banks well to pay interest on deposits? >> i get into my deposits i don't know where you are. i don't get paid interest on my deposit? is that the question why are deposit rates so low on demand deposit accounts? >> demand deposits you can have savings accounts and transactional accounts. typically they turn over fast you are not putting the money interest investment vehicle. that is not what a demand deposit it's a transaction account too. you are getting different services in lieu of interest. >> it is important to appreciate

governor that you come out this perspective of this entire conversation with a question first asking what is the problem governments trying to solve? >> times when economists try to do. >> i wish there was more of that. if you like your voice is so powerful and a world there's too much about will ferrell from the cowbell sketch. it's a feeling of like wild the central bank is so powerful there's a problem we can solve it. i think it's a refreshing an important voice and i'm pleased this is going to feature you on the board because it is important for everybody before they asked the question of their technology there's a powerful entity what can they do? to ask the threshold question of what is the problem we are trying to solve and why should we be the ones to solve it? if everybody could join me in thanking governor first sharing his views it. [applause] thank you very much. and i know dan you're going to close? come on up.

[background noises] every economy that has ever existed has been a combination of competition and coordination. between vibrant experiments and trying to extract the maximum social benefits from successful experiments. today's conversations have reflected the competition and coordination between private sector innovation and the role of the state in extracting the most from that innovation. it remains to be seen if it going to turn into action in the future. one of the things that motivated us to help people come away with today is that there are benefits to action. but there are also a lot of cost to in action and action done poorly. without sufficient thought to what lies ahead. thank you very much for being here today part like to thank a

few people in particular verse about brookings and venerable law school, columbia law school for financial support of this event. especially to megan and the other folks, when i call it? columbia. [laughter] shout out to professors and everybody back at columbia. i miss you guys. [laughter] they did not financially support the event but spiritually we can all agree they are part of today's festivities. i want to thank the moderators in each of the panelists for their amazing, insightful sometime bombastic comments and responses. it has been very hard but important questions. i wanted to thank director and governor for their candid remarks. and lastly and not least i want to thank erin for his incredible. >> i already thanked megan you're not even paying attention anymore. i will think megan twice.

now that megan is back in the room i'll thank her again. yes. thanks to megan and the brookings and thanks to the big man it himself, erin, for his incredibly insightful sort of questions. the thought-provoking and really sort of insightful into the folks making the decision by the future of our payment system. what is important to them and how they think about the challenges that lie ahead. to thank you again. [applause] [background noises]