pa href=https://www.cato.org/people/nicholas-anthony hreflang=enNicholas Anthony/a
/p
pAt the eleventh hour of 2021, Jelena McWilliams resigned as the Chair of the FDIC after the agency fell into anbsp;a href=https://www.cato.org/commentary/fdic-chairman-mcwilliams-wedged-political-power-playpartisan struggle/a. And while today marks the a href=https://www.fdic.gov/news/press-releases/2021/pr21107.htmllast day/a of her tenure, it is important to remember the beginnings of her story as the future of payments continues to unfold./p
pA few months earlier in October 2021, a href=https://www.fdic.gov/news/speeches/2021/spoct2521.htmlMcWilliams shared/a how her immigration to the United States had been anbsp;pivotal moment in her life. With just $500, she came to the United States right as Yugoslavia, her home country, was falling apart. Inflation in the country was quickly spinning out of control until it peaked at anbsp;monthly rate of a href=https://www.cato.org/commentary/worlds-greatest-unreported-hyperinflation313 million percent/a in January 1994./p
pThough McWilliams had escaped, her family remained in Yugoslavia. So in her effort to help them, she regularly sent money hidden inside birthday cards. But that money rarely made it to her family because postal workers were so desperate for sound money that they would steal the letters./p
pMcWilliams’ experience in former Yugoslavia was rare in that it was one of the worst hyperinflations on record, but her struggle to send money is common even today. Postal workers might not be intercepting letters, but the challenges of the U.S. payments system are still very real./p
pDespite the technological advances that have been made over the past 30nbsp;years, it is still faster to buy anbsp;plane ticket to Europe and hand‐deliver $10,000nbsp;in cash than it is to send it there through the banking system. But this isn’t just anbsp;border issue, transferring money within the United States can take days to settle. And that delay is an issue the government has continued to prolong./p
pConsider when a href=https://www.theclearinghouse.org/the Clearing House/a launched the Real‐Time Payments (RTP) network in 2017 to improve the a href=https://www.cato.org/publications/commentary/we-shouldnt-have-wait-fednow-have-faster-paymentsoutdated payments system/a in the United States. Like any network, the strength of the RTP network was dependent on the number of members that adopted it. In this case, the RTP network needed the majority of banks and credit unions to sign on for it to be successful––something that appeared likely to happen until the Fed intervened./p
pAfter just two years of the RTP network being in operation, the Fed announced that it would launch its own payments system: a href=https://www.frbservices.org/financial-services/fednowFedNow/a. Considering the Fed was acting as both a href=https://www.cato.org/testimony/facilitating-faster-payments-usanbsp;regulator of and anbsp;competitor to/a the RTP network, banks recognized that the success of RTP was no longer so certain and they a href=https://www.forbes.com/sites/norbertmichel/2018/12/16/the-federal-reserve-should-not-compete-with-private-firms/?sh=5bada96a7f42grew hesitant/a about joining the network. In effect, faster payments seem to be on hold until FedNow’s 2023 launch./p
pFaster payments seemed to be on hold, that is, until a href=https://www.coinbase.com/learn/crypto-basics/what-is-a-stablecoinstablecoins/a suddenly rose to prominence. Where traditional payments are limited to the operating hours of banks, stablecoins are constantly available. Transactions can take minutes rather than days and they only require an internet connection. Though they still have anbsp;long way to go before becoming mainstream, their potential is hard to deny./p
pYet the Fed has once again thrown its hat in the ring with the announcement of its interest in launching anbsp;a href=https://www.federalreserve.gov/publications/files/money-and-payments-20220120.pdfcentral bank digital currency/a (CBDC). And once again the Fed is poised to enter the market as both anbsp;regulator and competitor. To make matters worse, it might not just be the Fed crowding out the market like it is with the RTP network: a href=https://home.treasury.gov/news/press-releases/jy0454the President’s Working Group/a called for stablecoin issuance to be limited solely to traditional banks. Taking both the proposals would result in the Fed crowding out the market emand /emthe government eliminating most of the competition./p
pPostal workers may not be stealing money out of birthday cards like McWilliams experienced, but the U.S. government seems to be making anbsp;trend out of robbing Americans of payments innovations. Worse yet, the U.S. government has made anbsp;trend out of delaying improvements to the payments system. Congress should reverse course on these trends and a href=https://www.cato.org/briefing-paper/simple-proposal-regulating-stablecoinswelcome innovations like stablecoins/a that have the potential to finally fix America’s payments troubles./p
