- Fed Governor Waller opened the window for feedback on the proposed payment account for fintech and crypto companies.
- The central bank limits the new payment account to clearing and settling payments for participants.
- The payment account does not earn interest, does not have access to Fed credit, and has balance caps, unlike master accounts.
- Ripple is at the center of discussions due to its active part in developing the Fed’s modernized payment systems.
The Federal Reserve has opened a window for public input on a proposed measure that would allow fintech and crypto companies to access a “payment account” linked to the central bank’s clearing and settlement systems. The move is a follow-up to the “skinny master accounts” Fed Governor Christopher Waller referred to during a speech at a conference in October.
The Fed’s Response to Advancements in Payment Systems
Waller stated that the new payment accounts would reinforce innovation in the digital era and the security of payment systems. He claimed that their request for information (RFI) from the public is a crucial first step in ensuring that the Fed remains responsive to the rapid evolution of payment systems.
The US central bank clarified that the payment account would be distinct from the master account used by banks and other traditional financial institutions. It links participants to the Fed’s payment network, but it does not earn interest. Additionally, it lacks access to Fed credit, is subject to balance caps, and cannot change legal eligibility for Fed payment services access.
Dissenting Opinion from Fed Gov. Michael Barr
Fed Governor Michael Barr supports the payment account prototype for eligible institutions. However, he expressed opposition to the present version of the proposal under the RFI.
Barr believes the current proposal lacks safeguards to prevent the accounts from becoming tools for money laundering and terrorist financing by institutions it does not directly supervise. Nonetheless, he said he is open to reviewing public feedback recommending how the Fed could design and implement measures to eliminate or mitigate those risks.
Ripple at the Center of Speculations
Some members of the crypto community have recalled Ripple’s involvement since the early stages of the Fed’s development of its modernized payment system. The blockchain solutions infrastructure provider was notably a core member of the central bank’s Faster Payments Task Force (FPTF) in 2017. The group’s insights eventually led to the creation of the FedNow Service.
While the Fed didn’t mention Ripple’s role in its modernized payment services, several analysts pointed out that the company’s On-Demand Liquidity (ODL) solution, powered by XRP Ledger (XRPL), complements the central bank’s need for faster, cheaper, and more liquid payment rails. Some are throwing wild rumors that the two may be working together to enhance the new payment account model.
Others point out that, given its historical participation in the agency’s past endeavors and its thrust to evolve into a national trust bank, Ripple is uniquely positioned to be among the first major entities to leverage the Fed’s new framework.
