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Discussion Paper
Standing Repo Facilities, Then and Now
Recently there have been discussions, both within the FOMC and more broadly, about whether the FOMC should set up a standing repo facility. Such a facility would allow banks to sell safe assets (U.S. Treasury securities) to the Fed, with the assurance of subsequent repurchase, in unlimited quantities at an administered rate. This is not a new idea. In fact, a similar facility was implemented in 1683by the Bank of Amsterdam, the leading central bank of the time, and operated for more than a century afterward. In this article, we describe the motivations, operations, and limitations of the Bank ...
Discussion Paper
Central Banks, Global Shocks, and Local Crises: Lessons from the Atlanta Fed's Response to the 1920–21 Recession
During late 1920, the president (then called "governor") and board of directors of the Federal Reserve Bank of Atlanta were confronted with an unexpected, devastating collapse in the price of a commodity whose global production was concentrated in their district—cotton. Their judgment was that the fall in cotton prices was temporary and that its effects could be lessened with generous credit policies that did not conflict with the Federal Reserve Act. Other officials within the Federal Reserve System did not agree with this judgment, however, leading to a contentious policy debate and an ...
Journal Article
The Fed and Its Shadow: A Historical View
Central bank policies have always incorporated both a discretionary or active component and a passive component. Successful central banking has required a coordination of the two components. After a period of apparent dormancy, the passive component of monetary policy has emerged from the shadows and become relevant for Federal Reserve policy today.
Journal Article
Unstable Coins: The Early History of Central Bank Analog Currencies
Recently, there has been much discussion as to whether central bank digital currencies (CBDCs) should be introduced, and if so, how they should be designed. This article offers a historical perspective on this discussion, with a survey of early public bank (proto-central bank) "analog currencies"—circulating banknotes. Public banknotes were an experimental product when they were first issued in sixteenth-century Naples, but by the late nineteenth century, such notes could be found in most European countries. In between came all sorts of implementation difficulties: egregious insider fraud, ...
Journal Article
Central Banks, Global Shocks, and Local Crises: Lessons from the Atlanta Fed's Response to the 1920–21 Recession
During late 1920, the president (then called "governor") and board of directors of the Federal Reserve Bank of Atlanta were confronted with an unexpected, devastating collapse in the price of a commodity whose global production was concentrated in their district—cotton. Their judgment was that the fall in cotton prices was temporary and that its effects could be lessened with generous credit policies that did not conflict with the Federal Reserve Act. Other officials within the Federal Reserve System did not agree with this judgment, however, leading to a contentious policy debate and an ...
Journal Article
Standing Repo Facilities, Then and Now
Recently there have been discussions, both within the FOMC and more broadly, about whether the FOMC should set up a standing repo facility. Such a facility would allow banks to sell safe assets (U.S. Treasury securities) to the Fed, with the assurance of subsequent repurchase, in unlimited quantities at an administered rate. This is not a new idea. In fact, a similar facility was implemented in 1683 by the Bank of Amsterdam, the leading central bank of the time, and operated for more than a century afterward. In this article, we describe the motivations, operations, and limitations of the ...
Journal Article
The economics of check float
Checks continue to dominate the market for noncash retail payments in the United States. Each year, U.S. residents write between 65 billion and 70 billion checks, an average of one check per business day per resident. This dependence on checks is unique among developed countries. It is also extremely costly: by switching from checks to other forms of payment, U.S. residents would save between $60 billion and $100 billion dollars per year. ; Why do checks continue to see such wide use within the United States? Economists' explanations have focused on check "float," which is the interest ...
Journal Article
The design of wholesale payments networks: the importance of incentives
Most people are familiar with retail payments systems such as checks and credit cards. Less familiar are wholesale payments systems, which consist of electronic networks used for sending large sums among banks. A feature common to all wholesale networks is that settlement is carried out by exchange of funds held in banks' reserve accounts at a central bank, though the rules for settlement vary. This article considers the question of what is the best design for a wholesale payments system, in particular whether it should settle on a net or a real-time gross basis, and some of the difficult ...
Journal Article
Financial crises and the payments system: lessons from the National Banking Era
Since the Great Depression, the Fed has historically intervened during potential financial crises to ensure that financial market participants were provided with the liquidity necessary to complete their transactions. In recent years, this part of the Fed's role in the payments system has come under increased scrutiny as advances in computer and communications technology have led to increases in the liquidity of many types of financial claims and to the creation of new financial markets and new forms of payment. Recent years have also seen passage of legislation designed to more precisely ...