US Fed’s Waller raises doubts over interlinking instant payment systems

US Federal Reserve Board governor Christopher Waller has cast doubt on the feasibility of interlinking instant payment systems across different countries, just days after Reserve Bank of India governor Shaktikanta Das advocated for a globally interoperable cross-border payment system developed by India.
Speaking at the Global Fintech Fest on Wednesday, Waller expressed reservations about the practicality of connecting domestic fast payment systems to expedite cross-border transactions.
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“Variation around the world in domestic fast payment network adoption means that the value of globally interlinked systems is not yet clear,” Waller said. “I am not entirely convinced that interlinking arrangements will necessarily deliver on those goals,” he added.
Waller highlighted the potential costs and complications that such interlinking could impose on banks, including heightened legal and compliance challenges. While acknowledging the benefits of existing cross-border payment systems, he noted that certain frictions slowing down transactions could serve as safeguards against money laundering, terrorism financing, and other illicit activities.
“There is no silver bullet that increases speed and efficiency without tradeoffs, he warned. “Unless new solutions are found, interlinking fast payment systems might increase the risk-management burden for banks that participate in them.”
Waller underscored that the US is prioritizing the development of its internal FedNow network in the near to medium term. FedNow, an instant payment system developed by the Federal Reserve, currently connects 1,000 depository institutions, including many of the nation’s largest banks.
“Domestic networks need to be developed first. If this condition is not in place, interlinked networks could end up being a road to nowhere,” he cautioned.
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Despite his reservations, Waller noted that the US remains committed to researching emerging technologies aimed at enhancing cross-border payment systems. He also emphasized the unique challenges the US faces, given its 9,000 depository institutions, each governed by different authorities.
Waller’s remarks come on the heels of comments made by governor Das at the Global Conference on Digital Public Infrastructure and Emerging Technologies on Monday.
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“In this journey of attaining harmonisation and interoperability among countries, a key challenge could be the fact that countries may prefer to design their own systems as per their domestic considerations. We can overcome this challenge by developing a plug and play system which allows replicability while also maintaining the sovereignty of respective countries. India has made some progress in this direction and would be happy to develop a plug and play system for the benefit of the community of nations,” Das had said.