Thread by @GeorgeSelgin

This has long been my view. The FRA authorizes Fed provision of paper currency, but does not otherwise allow it to supply retail payments media; in particular it does not allow it to compete directly w/ commercial banks by taking retail deposits.

https://twitter.com/DavidBeckworth/status/1364557649497350144

Furthermore, the Fed account plans I've seen typically assume that they would bear interest at or very close to the IOR rate. Besides posing the risk of beggaring private financial intermediaries, that procedure would have the Fed thumb its nose at the 1980 Monetary Control Act.

Fed policy, informed by the MCA, calls for it to generally avoid changes that "would have a direct and material adverse effect on the ability of other service providers to compete effectively with the Federal Reserve in providing similar services." federalreserve.gov/paymentsystems…

Alas, as we've seen in the case of FedNow, the rules are porous enough to drive a horse-and-six through: thus the Fed can make exceptions if it deems "the anticipated benefits" of a new service it provides to be "significant enough."

(This sort of thing is what happens when we let agencies decide how legislation meant to limit their powers should be implemented.)

But the Fed's rules also call for it to consider whether a "proposal’s objectives could be reasonably achieved with a lesser or no adverse competitive impact." In fact, experience elsewhere shows that many of the benefits of Fed accounts can also be achieved by other means.

In particular, FinTech's have shown themselves capable of delivering many banking services to the unbanked, to the extent that they're allowed to. weforum.org/agenda/2020/08…

In the U.S., providing special national charters for FinTechs, and making it easier for them to secure Fed Master Accounts, are crucial steps. There are many ways to do this safely w/out subjecting all FinTech's to the same regulatory requirements as banks.

I favor @DanAwrey's suggestion that FinTech payment service providers (not to be confused w/ Pass-Through Investment Intermediaries) be exempt from most bank regulatory requirements, provided they back customer deposits 100% w/ Fed Master Account balances. papers.ssrn.com/sol3/papers.cf…

For these reasons, I not only believe that Congress should have the final say regarding Fed retail account balances. I also believe it should say "no." @DavidBeckworth @lawrencehwhite1 @FintechDiego @rachsieg @vtg2 @michaelsderby @LevMenand @PeterContiBrown @ProfKateJudge