NEACH Response to Money and Payments: The U.S. Dollar in the Age of Digital Transformation
May 20, 2022
Via Electronic Submission
Ann E. Misback
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, N.W.
Washington, D.C. 20551
Dear Ms. Misback:
NEACH welcomes the opportunity to submit this comment letter to the Board of Governors of the Federal Reserve System (the “Fed”) in response to the discussion paper Money and Payments: The U.S. Dollar in the Age of Digital Transformation. NEACH views the effort to improve the U.S. payment system as a public-private partnership and appreciates the Fed’s efforts to date to coordinate discussion among industry participants. In addition to our own comments, we would like to support the comments provided by Nacha in their May 11, 2022 submission.
NEACH & Nacha
The New England Automated Clearing House (NEACH) is a non-profit association that helps members originate and receive ACH transactions, and provides products, services, education, and marketing to increase the acceptance, use and quality of electronic transactions. For more information, visit neach.org.
Nacha governs the thriving ACH Network, the payment system that drives safe, smart, and fast Direct Deposits and Direct Payments with the capability to reach all U.S. bank and credit union accounts. Just over 29 billion ACH Network payments were made in 2021, valued at $72.6 trillion. The ACH Network is governed by the Nacha Operating Rules (“Nacha Rules”), which are developed and maintained by Nacha. In our role as the standards organization for payments through the ACH Network and author of the Nacha Rules, Nacha represents over 10,000 participating financial institutions of all sizes and types throughout the United States, both directly and through 10 Payments Associations. Nacha’s rules development process includes input and participation from all types of organizations, including both business and consumer end-user organizations, as well as the Fed and the Federal Reserve Banks.
NEACH Participation in the Journey to Faster Payments
NEACH has actively participated in the creation process of many of the latest payment system innovations. Our membership in Nacha has allowed us to be directly involved in Nacha Rule changes and industry education around Same Day ACH. NEACH also actively participated in the work of the Federal Reserve’s Faster Payments Task Force and is a founding member of the U.S. Faster Payments Council.
Exploring a U.S. Central Bank Digital Currency
Money and Payments: The U.S. Dollar in the Age of Digital Transformation
NEACH would like to compliment the Federal Reserve on the development of this paper. It presents an incredible amount of content touching on numerous areas of consideration. With so many central banks exploring the area of Central Bank Digital Currencies (CBDC), it is certainly time for the Federal Reserve to engage the industry in investigating a U.S. CDBC. Below are the areas of consideration NEACH would especially highlight for the Federal Reserve to address as this important work continues.
As referenced above, NEACH is a regional payments association. We have been extremely involved in payment system developments for nearly 50 years. For many of those years, NEACH was specifically focused on the Automated Clearing House (ACH) Network, but over the past decade, we have been deeply engaged with the entirety of the U.S. payment system, especially as relates to faster payments initiatives.
In recent history, the industry has seen the modernization of existing payments systems and the introduction of new payment systems like The Clearinghouse’s Real Time Payments® (RTP®) and the upcoming Federal Reserve FedNowSM system.
Over the past few years, the industry has experienced a greater adoption of digital payments due to Covid. We have observed this growth in digital payment adoption in financial institutions and third-party service providers of all sizes. In tandem, we have witnessed the growth of “cryptocurrencies” and related technologies. These new payment modalities continue to evolve, and in turn, NEACH members are asking, “What role to banks and credit unions play in crypto?”
One of NEACH’s primary roles is in information sharing and education. We believe that NEACH members have expert knowledge of traditional payments systems and are striving to learn what awaits as a result of new digital and faster payment systems, including developments with varying forms of cryptocurrency. In fact, NEACH staff themselves have become fast students of CBDC and cryptocurrencies. The topics addressed in the Money and Payments: The U.S. Dollar in the Age of Digital Transformation paper introduced numerous new topics, ideas, and examples that the industry will need to learn and understand to actively contribute to the discussion of a CBDC.
As an example, clarity around definitions will be necessary for a fruitful dialogue around CBDC. The technologies behind CBDC are commonly referred to as “cryptocurrencies,” when as the paper points out, these items are not used as currency, but as digital assets and would be impractical to be used as “digital dollars.” In fact, we could present that most of the 18,465 cryptocurrencies today would act more like a stock than a currency. Those nuances shift the conversation, pointing out that using cryptocurrencies in their current form for CBDC could be likened to using stock to pay for a slice of pizza. This detailed conversation will be necessary to ensure industry clarity around the nuances between any U.S. CBDC and today’s available cryptocurrencies.
Inclusivity and Intent
Our research and reading also have unveiled numerous approaches to CBDC that could be explored with varying effects on the industry and monetary policy. For example, the effect would be different depending on whether the CBDC paid interest or adopted specific one-tier or two-tier models.
Overall NEACH would support a model that allows participation for financial institutions of all sizes without adversely affecting smaller institutions simply because of the size of their balance sheet.
In regard to financial inclusion, NEACH staff question how extensively a CBDC would better address the underbanked than any of the existing mobile app solutions. We struggle to identify how CBDC would make a more positive impact on consumers living paycheck-to-paycheck and regularly utilizing short-term loans to pay the bills. We fail to see what CBDC would offer that would substantially strengthen their standing, but we are open to continued discussion.
Also, Money and Payments: The U.S. Dollar in the Age of Digital Transformation identifies a U.S. CBDC as helpful in international payments. The Bank for International Settlements in BIS Working Papers No 976 presents two different approaches on how a CBDC could work for international payments. The first shares a mostly microeconomic method, not resulting in a large amount of CBDC being transferred internationally. The second approach includes a macroeconomic model where there would be a large balance of U.S. CBDC transferred out of the nation. We were unable to identify which model Money and Payments: The U.S. Dollar in the Age of Digital Transformation was presenting.
Drivers for Change
In conclusion, NEACH supports the Federal Reserve in exploring the introduction of a U.S. CBDC that would be utilized by financial institutions of all sizes. We also support an approach that allows the industry and associations like ours to partner with the Federal Reserve in broad education around the topics addressed in the paper.
Joseph S. Casali
Executive Vice President