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The Federal Reserve is wrong again. This time with real time payments

Written By | Sep 21, 2019
RTP, Real Time Payments, Fed, Federal Reserve, Economy, Congress, Federal Reserve,

By AgnosticPreachersKid – Own work, CC BY-SA 3.0,

WASHINGTON:  Over the past few months, President Trump has had some choice words when it comes to the Federal Reserve. This time the concern is The Federal Reserve jumping on the bandwagon of Real Time Payments (RTP) when the parade has already passed by.

Most recently, on September 11, President Trump decried the Federal Reserve as bonehead bureaucrats missing a once-in-a-lifetime opportunity to benefit the American economy.

In August,  Trump excoriated Fed Chairman Jerome Powell for his “horrendous lack of vision,” and criticized the central bank for its exceptionally poorly-timed decision-making.

Needless to say, our Commander-In-Chief has a rather low opinion of the organization responsible for America’s monetary policy. But in this case, Trump’s assessment is dead on.

The Fed is an unmitigated disaster, and it must be put in check.

In its ability to forecast economic condition, the Fed has consistently underperformed the private sector over the years s. For most level-headed Americans, this revelation shouldn’t come as too much of a surprise. The Federal Reserve is, after all, an enormous government bureaucracy. And like all other bureaucracies, the Fed is a hulking behemoth of waste, misappropriation, and inefficiency.

The Federal Reserve Monetary Policy stoking fear, hurting the economy

The only difference is that the Federal Reserve acts alone, independent from the interests of Americans and removed from the consequences of its own actions.

Unsurprisingly, the results have been devastating.

The Fed leading America into the Great Depression and Recession

America’s central bank is responsible for the economic travesties of the Great Depression (1929-1930) and the Great Recession of 2008. Its myriad miscalculations are in large part the cause of our present-day stock market instability. Given that the Federal Reserve is principally responsible for ensuring the optimal performance from the American economy, this is a serious problem.

Despite the Fed’s blatant failures, it remains largely unchecked. It eagerly dives headlong into the next economic “problem” that needs to be solved, irrespective of the potential harm its “solutions” would cause. All too often, the Fed’s intervention can best be described as “too little, too late.”

And that’s especially the case concerning their latest approach toward the market for real-time payments (RTP).

In August, the Federal Reserve announced its plan to develop its own real-time payments system.

In doing so, the Fed intends to establish a financial infrastructure that would ensure instantaneous bank-to-bank transfers for accounts within the United States.

Under the current system, payments can take upwards of an entire business day to clear. That is, of course, not to mention the fact that one “business day” doesn’t include the weekends. As a consequence of this painfully slow payment system, everyday Americans suffer. These delays can devastate families living paycheck to paycheck, as the lethargic payment processing can lead to massive overdraft fees or late fees.

Federal Reserve punts again on increasing interest rates

Ultimately, this system results in even greater levels of credit card debt. As well as a substantially lower credit score for those that need it most. This is the problem that a real-time payment system looks to solve.

The Fed creating a real-time payment system would have been a better idea if it had acted on it five years ago. But our central bank’s reaction time was delayed, and it failed to get the jump on RTP.

Now, rather than being a net positive for the American economy, without the right protections in place, the Fed’s proposed system of real-time payments could jeopardize not only our nation’s private sector banking industries but America’s economic efficiency and innovation as well.

In the central bank’s stead, the private sector stepped up and is now thriving in the RTP industry.

They started creating their own real-time payments systems several years ago, with one already serving about half of all U.S. checking accounts. The private RTP marketplace is growing and flourishing within the United States, but the Fed’s intervention could change that by potentially harming the private sector while destroying competition and innovation alike.

The Federal Reserve Board announcing that Federal Reserve Banks will develop a new round-the-clock real-time payment and settlement service,  FedNow℠.  The Fed claiming it will support faster payments in the United States. (Federal Reserve announces plan to develop a new round-the-clock real-time payment and settlement service to support faster payments)

We must prevent the Fed’s intervention from repeated the same harmful results of the past. Since the Fed is the regulator of the marketplace, FedNow could effectively become a government-run monopoly. Thus creating additional bureaucratic hurdles in the process.

Given the central bank’s history of inefficiency, concerns are monopolization would weaken the currently strong RTP marketplace. Instead of the free market working for the American people, FedNow could supplant private innovation with higher costs and lower quality of service. As a result, Americans will suffer.

It’s the job of Congress to ensure a system of checks and balances prevent adverse outcomes.

Luckily, Rep. Ted Budd (R, NC), a member of the House Financial Services Committee, recognizes this reality and is pushing to take a closer look into the Fed’s proposal. He sponsored legislation that would force the Fed to carry out a study of the potential impact of their RTP system. And now, the Senate is also getting involved, holding a hearing on the matter on September 25. This will provide Congress the opportunity to ask the central bank to ensure its system is compatible with the private sector. Thus ensuring that its existence doesn’t negatively affect millions of consumers who are already connected in real-time.

The Representatives’ actions are certainly the right move for their constituents and the American economy. For far too long, the Federal Reserve has operated as an unaccountable, economy-influencing government bureaucracy, and Trump was absolutely right to level it with criticism.

Given the obvious private sector consequences, the Fed’s entrance into the real-time payment system must be thoroughly examined. Our central bank has an unfortunate history of costly mistakes—mistakes we can’t afford to repeat here. We must ensure that the Fed works with the private sector. Work with them without regulating them out of existence. Only then could a federal RTP system properly function.


Lead Image: By AgnosticPreachersKid – Own work, CC BY-SA 3.0,

Michael Busler

Michael Busler, Ph.D. is a public policy analyst and a Professor of Finance at Stockton University where he teaches undergraduate and graduate courses in Finance and Economics. He has written Op-ed columns in major newspapers for more than 35 years.